C-NRLF 


B    37    73 


LIBRARY 

OF    THE 

UNIVERSITY  OF  CALIFORNIA. 

ClMS 


LTY  SERIES.        pubsu)oede?Yaerlrfly'        Single  Numbers,  25c. 


VOL.  II.-Xo.  1. 


•Revision  to  1900 

RATIONAL  MONEY 

— -PARSONS. 

A  NATIONAL  CURRENCY 

INTELLIGENTLY  CONTROLLED  IN  THE  INTERESTS  OF  THE  WHOLE  PEOPLE 

AND  CAREFULLY  REGULATED  IN  REFERENCE  TO  THE  TRUE 

COMMODITY  BASIS,  THE  REAL  CONSTANT  OF 

EXCHANGE,  BY  MEANS  OF 

THE   MULTIPLE   STANDARD 

IN  SUCH  A  WAY  THAT 
THE  DOLLAR  SHALL  REMAIN  CONSTANT  IN   ITS  PURCHASING  POWER 

FROM   MONTH  TO  MONTH  AND  YEAR  TO  YEAR, 

REPRESENTING  ALWAYS  THE  SAME  AVERAGE  AMOUNT  OF  COMMODITIES  AND  SERVICES 

AND  GIVING  TO  ITS  POSSESSOR  AT  ALL  TIMES  THE  SAME  AVERAGE  COMMAND 

OVER  THE  WORLD  OF  PURCHASEABLE  THINGS. 

No  Copyright. 

On  the  contrary,  an  invitation  is  extended  to  all  to  do  their  utnio-. 
in  every   way  to  spread  the  truth 
Newspapers  and   ina.r-i 
due  credit  oulv  licit,  k<-I. 


PUBLISHED   BY 

C.    F\    TAYLOR 

1520  CHESTNUT  STREET,  PHILADELPHIA,  PA, 


SAMPLE  PAGES  OF  "RATIONAL  MONEY." 


History  sanctions  an  independent  paper  money 
of  regulated  volume. 

Science  proves  such  money  to  be  the  best. 


AUTHORITY     Distinguished  leaders  of  thought,  economists, 
*        statesmen,  and  financiers  approve  the  prin- 
ciples on  which  the  plan  is  based. 

The  Power  of  Paper,  with  the  Multiple  Standard. 

The  essential  attribute  of  money  is  general  receivability.  Money 
should  not  be  a  promise  to  pay,  but  to  receive,  and  to  see  that 
others  receive.  Next  to  receivability  the  most  vital  fact  of  mone- 
tary science  is  the  movement  or  non-movement  of  the  money 
volume.  Through  this  prices  may  be  controlled,  a  rise  or  fall  pro- 
duced, or  a  rise  or  fall  from  other  causes  prevented,  or  checked 
and  cancelled  if  it  has  occurred.  Power  to  control  the  money 
volume  is  power  to  do  justice  or  injustice  between  debtor  and 
creditor,  laborer  and  employer,  buyer  and  seller,  landlord  and 
tenant,  interest  receiver  and  entrepreneur;  power  to  increase  the 
weight  and  value  of  every  debt  public  or  private,  power  to  pro- 
duce panic  or  prosperity,  power  to  regulate  industry  and  deter- 
mine the  distribution  of  wealth.  Such  power  is  an  attribute  to 
sovereignty  and  ought  to  belong  to  none  but  the  sovereign  people. 
The  money  volume  should  no  longer  be  left  to  chance  or  private 
manipulation,  but  subjected  to  intelligent  control  in  the  interest 
of  the  public. 

Steadiness  of  value  is  the  morality  of  the  dollar.  An  appreciat- 
ing dollar  robs  debtors  and  depresses  industry.  A  depreciating 
dollar  robs  creditors  and  may  lead  to  feverish  speculation.  The 
creditor  should  receive  the  same  purchasing  power  that  he  lent, 
the  same  command  over  commodities,  services,  all  the  means  of 
life  and  happiness.  To  accomplish  this  the  dollar  must  not  be 
based  on  a  gold  standard,  for  the  purchasing  power  of  gold  is  not 
constant,  but  exceedingly  variable.  The  same  is  true  of  the  bi- 
metallic standard  in  a  slightly  less  degree.  The  average  purchasing 
power  of  gold  and  silver  vibrates  a  little  less  than  gold  alone. 
Two  commodities  may  be  better  than  one,  but  100  or  200  or  500 
commodities  make  a  steadier  base  than  two.  A  list  of  all  com- 
modities would  be  constant  in  the  sum  of  its  exchange  values. 
If  the  value  of  one  commodity  fell  the  others  would  gain  what 
it  lost, — their  purchasing  power  over  it  would  be  increased  in  the 
same  ratio  that  its  purchasing  power  over  them  is  diminished, 
and  vice  versa  if  one  or  more  commodities  rise  in  exchangeable 
value  the  others  fall  in  like  ratio.  The  true  standard  is  a  list  of 
all  commodities  each  one  being  entered  according  to  its  importance 
in  consumption  and  expenditure.  The  nearest  practicable  approach 
to  this  is  a  long  list  of  commodities  weighted  according  to  im- 
portance, each  commodity  being  entered  in  such  amount  as  to 
have  the  same  value  relatively  to  the  total  value  of  the  list,  that 
the  consumption  of  that  commodity  has  to  the  total  consumption 
of  the  community.  The  nearest  to  all  commodities  is  a  large  num- 
ber of  commodities  so  selected  as  -to  fairly  represent  the  various 
parts  and  classes  of  the  whole.  It  is  this  composite  or  Multiple 
Standard  which  justice  and  progress  require  us  to  adopt.  A 'na- 
tional paper  money  regulated  in  volume  so  as  to  be  in  harmony 
with  this  standard  will  constitute  a  xnierhty  power  for  justice  and 
prosperity. 


RATIONAL  MONEY 


A 

NATIONAL  CURRENCY 

INTELLIGENTLY    REGULATED    IN    REFERENCE 

TO    THE 

MULTIPLE  STANDARD. 


BY 


FRANK    PARSONS 


-KCTURKR   IN   BOSTON   UNIVERSITY   LAW   SCHOOL;    PROFESSOR   OF   HISTORY   AND    POLITI- 

CAL  SCIKNCK    IN   KANSAS   S.  A.  COLLEGE;    PRESIDENT   OF   THE    NATIONAL   LEAGUE 

FOR   PROMOTING   THE   PUBLIC   OWNERSHIP   OF   MONOPOLIES;     AUTHOR   OF 

"THE  WORLD'S  BEST  BOOKS,"  "THE  PHILOSOPHY  OF  MUTUAL- 

ISM," "THE  TELEGRAPH  MONOPOLY,"  ETC.;  MEMBER  OF 

THE  BOSTON  BAR,  AND  AUTHOR  OF  "  PARSONS* 

EDITION  OF  MORSE  ON  BANKS  AND 

BANKING,"    ETC.,    ETC. 


PUBLISHED   BY 

C.   F.  TAYLOR 

1520  CHESTNUT  STREET,  PHILADELPHIA,  PA. 

1898 


PREFACTORY    NOTE. 
In  the  early  spring  of  1897,  after  the  subsidence  of  the  remarkable 

"battle  of  the  standards"  of  the  campaign  of  1896,  I  realized  the 
need  of  two  things: 

First — A  presentation  of  the  historical  instances  of  success  with 
paper  money;  also  the  reasons  for  the  failures  that  are  so  often 
cited  by  the  partially  informed  as  final  arguments  against  paper 
money. 

Second — A  further  development  of,  and  a  strong-  presentation 
of  the  Multiple  Standard,  which  is  the  only  true  and  rational  stand- 
ard for  money — the  only  thing  that  will  give  us  a  normal  dol- 
lar at  all  times  instead  of  the  abnormal  gold  standard  dollar,  or  the 
somewhat  less  abnormal  bi-metalic  dollar. 

I  outlined  my  plan  for  such  a  book  and  communicated  the  same  to 
my  friend,  Prof.  Frank  Parsons,  of  Boston  University,  whose  stu- 
dies had  already  led  him  to  take  advanced  views  upon  the  money 
question  in  his  Arena  articles  of  October  and  November,  1896.  Being 
myself  too  busy  to  undertake  the  work,  I  was  fortunate  (and  it  was 
fortunate  for  the  work)  in  securing  the  services  of  so  eminent 
and  able  a  scholar  as  he,  who  combines  in  a  phenomenal  degree 
the  qualities  of  investigator,  analyst,  logician  and  original  thinker. 
By  the  ability  and  thoroness  with  which  Professor  Parsons  has 
done  the  work,  he  has  placed  not  only  myself,  but  our  country  and 
the  cause  of  economics  under  lasting  obligations  to  him. 

The  idea  has  here-to-fore  been  quite  prevalent  that  paper  money 
has  been  a  failure  in  history.  This  book  conclusively  shows  that 
many  of  the  popularly  considered  failures  have  been  successes  in 
the  main,  and  that  paper  money  has  succeeded  or  failed  according 
as  the  correct  principles  have  been  followed  or  violated.  In  this 
respect  it  is  just  like  the  grocery  business,  brick  making,  fanning, 
or  any  other  business  undertaking;  it  will  succeed  when  correctly 
managed  and  fail  when  badly  managed. 

Paper  money  is  the  money  of  civilization.  It  is  here  to  stay.  Its 
history  and  principles  should  be  known. 

Gold  and  silver  money  was  evolved  by  a  natural  process.  The 
first  paper  money  consisted  of  promises  to  pay  gold  and  silver. 
The  idea  is  still  prevalent  that  paper  money  is  only  "represent- 
ative" money,  and  that  it  can  "represent"  only  gold  and  silver. 
Why  can  it  not  "represent"  any  kind  of  wealth,  or  all  kinds  of 
wealth,  averaged,  as  well  as  gold  and  silver?  The  purpose  of  thus 
book  is  to  solve  this  question. 

Money  has  been  defined  as  "an  instrument  of  association."  Per- 
haps a  better  definition  is  an  instrument  of  co-operation.  As  such  it 
should  be  made  as  perfect  as  possible,  and  not  be  allowed  to  degen- 
erate into  an  instrument  of  oppression.  An  instrument  by  which 
all  classes  exchange  products  and  services  with  all  other  classes 
should  be  just  to  all. 

It  is  my  pleasure  to  announce  that  Professor  Parsons  is  preparing 
a  companion  work  to  this  on  the  transportation  question.  In 
this  day  of  steam  and  electricity  the  transportation  question  has 
become  of  scarcely  less  importance  than  the  money  question.  Other 
works  on  pressing  public  questions  will  follow. 

Philadelphia,  August,  1898.  C.  F.  TAYLOB. 


AUTHOR'S    PREFACE. 


1.  The  rise  and  fall  of  general  prices  is  one  of  the  greatest  evils 
that  can  afflict  a  commercial  nation.  Industry  is  apt  to  be  unduly 
intensified  by  rising  prices,  and  so  obstructed  by  their  fall  that 
depression  and  panic  result.  The  movement  of  prices  changes  the 
distribution  of  wealth — alters  the  shares  that  go  to  labor,  capital 
and  management,  makes  hoarded  money  more  or  less  valuable, 
and  lightens  or  intensifies  the  burden  of  debt.  A  buys  a  farm 
for  $4,000  and  borrows  $2,000  to  help  pay  for  it.  In  a  few  years 
the  fall  of  prices  brings  his  land  down  to  a  value  of  $2,000.  But 
the  debt  has  not  shrunk  and  the  creditor  takes  the  whole  farm 
for  a  loan  that  was  worth  but  half  the  farm  at  the  time  it  was 
made.  At  the  same  rate  the  creditor  class,  loaning  thruout 
the  country,  would  acquire  the  United  States  in  return  for  loans 
amounting  to  half  its  value.  It  is  estimated  according  to  a  careful 
writer,  the  Hon.  Henry  Winn,  that  the  fall  of  prices  since  1873 
has  given  the  creditor  classes  of  the  world,  at  the  expense  of 
debtors,  an  unearned  increment  of  $3,000,000,000  per  annum,  equal 
in  eight  years  to  the  whole  assessed  valuation  of  the  United  States 
by  the  last  census,  and  aggregating,  in  the  quarter  of  a  century 
covered  by  the  estimate,  a  sum  exceeding  the  full  value  of  all 
the  property  in  the  country;  and  this  vast  value  has  been  paid 
by  debtors  in  addition  to  the  principal  and  interest  they  agreed 
to  pay.  No  wonder  that  the  creditor  classes  are  anxious  to  con- 
trol the  money  system  through  which  the  movement  of  prices 
may  be  governed.  And  no  wonder  the  debtor  classes  are  anxious 
to  try  their  hand  at  managing  the  machinery  of  finance.  In  jus- 
tice, the  money  system  ought  not  to  be  controlled  in  the  interest 
of  any  class,  but  in  the  interest  of  the  whole  people. 

The  movement  of  the  price  average  is  chiefly  influenced  by  the 
movements  of  money-volume,  credits,  and  production.  The  easiest 
of  these  to  control  is  the  money-volume,  and  the  control  of  this 
confers  the  power  to  govern  the  movement  of  prices  because  the 
influence  of  any  change  in  credits  or  production  can  be  overcome 
by  sufficient  increase  or  diminution  of  the  money  volume.  The 
movement  of  the  money  volume  is  the  vital  monetary  fact,  the 
key  to  the  financial  situation.  Through  the  control  of  this  move- 
ment prices  may  be  made  to  rise  or  fall  or  remain  substantially 
steady.  This  means  control  of  justice  or  injustice,  prosperity  or 
panic,  wealth  diffusion  or  congestion. 

Power  to  control  the  money-volume  is  power  to  do  justice  or  in- 
justice between  debtor  and  creditor,  laborer  and  employer,  buyer 
and  seller,  landlord  and  tenant,  interest  receiver  and  entrepreneur, 
power  to  increase  the  weight  and  value  of  ?very  debt,  public  or 
private,  power  to  produce  panic  or  prosperity,  power  to  regulate 
industry  and  determine  the  distribution  of  wealth,— such  power 
is  an  attribute  of  sovereignty  and  ought  to  belong  to  none  but 


iy  AUTHOR  S    PREFACE. 

the  sovereign  people.  Such,  a  control  should  only  be  exercised 
with  judgment  and  intelligence  in  the  interests  of  the  whole  peo- 
ple, in  order  that  justice  and  not  injustice,  fair  diffusion  and  not 
congestion,  prosperity  and  not  panic,  may  result.  At  present  this 
vital  matter  is  left  almost  entirely  to  chance  and  private  manage- 
ment. Banks  and  the  vicissitudes  of  mining  and  speculations  deter- 
mine th^  movements  of  money.  It  is  even  possible  for  foreign  in- 
fluences to  exert  large  control  over  our  money  and  credits,  and 
put  new  slopes  and  notches  in  our  price  line.  This  is  all  wrong. 
No  chance  or  private  monopoly  or  foreign  power  should  be  per- 
mitted to  manage  our  money  or  draw  a  price  curve  for  us.  The 
movement  of  the  money-volume  is  a  public  affair,  and  the  ma- 
chinery for  controlling  it  should  belong  to  the  public  and  be  oper- 
ated by  and  for  the  public.  A  matter  of  such  incalculable  moment 
to  the  nation,  and  in  relation  to  which  private  interest  is  fre- 
quently antagonistic  to  public  interest,  should  not  be  left  to  pri- 
vate control,  but  should  be  subject  to  constant,  careful,  intelligent 
public  regulation.  This  is  the  most  important  lesson  that  emerges 
from  the  fact  and  philosophy  contained  in  the  following  pages.1 
A  few  related  thoughts  demand  some  mention  here. 

2.  Given  intelligent  public  control  of  the  money-volume,  with 
a  view  to  regulating  the  movement  of  general  prices,  what  is  to 
be  the  aim?  Shall  the  price  line  be  made  a  gradual  upward  slope 
to  afford  a  moderate  stimulus  to  industry,  till  the  unemployed  are 
reabsorbed  and  debtors  are  eased  of  the  overweight  of  past  obli- 
gations, or  shall  the  line  be  level  from  the  start?  Much  may  be 
said  in  favor  of  a  temporary  upward  slope,  but  on  the  whole  it 
would  seem  better  to  make  the  line  level,  and  accomplish  the  other 
purposes  referred  to,  moderate  stimulation  of  industry,  provision 
for  the  unemployed,  etc.,  through  the  establishment  of  public 
works,  making  good  roads,  planting  forests,  digging  canals,  build- 
ing ships,  establishing  schools,  etc.  Meantime  providing  funds  and 
aiding  wealth  diffusion  by  means  of  progressive  income  and  inheri- 
tance taxes.  The  ideal  dollar  is  one  that  will  not  mulct  either  the 
debtor  or  creditor,  nor  encourage  speculation,  nor  depress  industry 
— a  dollar  of  constant  purchasing  power,  commanding  the  same 
average  amount  of  commodities  and  services  from  year  to  year  and 

(*)  (For  the  method  of  public  control  see  Chapter  III.)  The  fundamental 
doctrine  of  the  importance  of  controlling  the  movement  of  the  money 
volume  in  the  public  interest,  may  be  accepted  by  all,  whatsoever  their 
views  about  the  demonetization  silver,  metallic  redemption,  paper  money, 
intrinsic  value  and  other  monetary  questions.  A  couple  of  concrete  in- 
stances of  the  utility  of  even  a  rough  control  of  the  money  movement 
may  be  of  advantage  here.  First,  The  way  to  prevent  a  speculative 
disaster  or  shrinkage  of  credit,  etc.,  from  developing  into  the  wide-spread 
distress  we  call  panic,  is  to  expand  the  money  volume  by  easy  loans  or 
otherwise.  That  expansion  is  the  proper  medicine  for  the  prevention  and 
cure  of  panics  is  recognized  by  the  Bullion  Committee,  Bagehot,  Wm.  G. 
Sumner,  Pres.  Walker,  and  all  the  other  financial  doctors  so  far  as  I  know. 
But  our  private  banks  refuse  to  administer  the  prescription,  because  it 
is  dangerous  to  them.  For  an  ordinary  bank  to  increase  its  loans  In  the 
face  of  panic  would  be  to  risk  its  existence.  But  the  nation  is  big  enough 
and  strong  enough  to  do  the  work.  It  can  loan  money  to  merchants  and 
business  men  in  times  of  stringency,  with  the  certainty  of  averting  loss 
from  itself,  instead  of  the  danger  of  bringing  ruin  upon  itself.  Second. 
A  moderate  increase  of  the  money  volume  in  the  fall  of  the  year  when 
the  movement  of  crops,  etc.,  creates  a  special  pressure  on  monetary  facili- 
ties, would  be  a  step  toward  Justice  to  agriculture. 


AUTHOR'S  PREFACE. 


age  to  age — an  ethical,  impartial,  democratic  dollar,  a  dollar  that 
will  act  as  a  fly  wheel  to  keep  the  national  engine  working-  smooth- 
ly all  the  time,  instead  of  producing-  or  aggravating-  industrial  dis- 
aster and  explosion.  The  price  line  must  become  a  safe  horizontal 
instead  of  the  dangerous  zigzag  of  a  bolt  of  lightning. 

PRICE  LINE  1866-1898-  GOLD  Pftices 

ALDFUCH  DATA     1866-1691  "AMERICAN"  DATA    1891-8. 
1660  1870  1880  1890 


-100 


-90 


-80 


VI 


AUTHOR'S  PREFACE. 


Since  1873  the  chain  lightning  of  prices    has    been    golden    (see    cut    on 
page   V),   before   that   time   it   was   bimetallic     (as     shown     in     this     cut). 
Neither  of  these  monetary  thunderbolts  appear  to  have  much  affection  for 
the  safe  and  honest  horizontal. 


PRICE  LINE  1837-1673   BIMETALLIC  PRICES 

ALDRICM  DATA    1640- 1873.^-1837- '&40    BROAD   ESTIMATE    FROM 
DATA    OF  W*   G.  5UMNER  &  Ml/LHALL'S    CITATrONS  . 


1640 


1850 


I860 


1870   1873 

-140 


-130 


-120 


-110 


-100 


-  90 


If  the  weekly  or  even  the  quarterly  variations  had  been  noted,  the 
lines  in  both  of  these  diagrams  would  have  been  full  of  saw  teeth.  If  the 
maximum  and  minimum  price  levels  had  been  marked  instead  of  the  yearly 
average,  the  extremes  would  have  been  far  greater  than  those  shown — the 
drop  in  a  panic  being  sometimes  more  than  double  that  shown  by  the 
yearly  averages  (see  p.  57).  If  actual  prices  had  been  taken  (instead  of  metallic 
prices),  we  should  have  found  that  during  the  war  period  of  unregulated 
issue  of  imperfect  legal  tender  paper,  the  price  line  would  have  soared  76 
points  above  the  top  of  the  diagram.  Altogether  these  diagrams,  full  of 
ruin  and  injustice  as  they  are,  are  yet  mild  representatives  of  the  pres- 
ent money  system.  They  tell  part  of  its  evils,  but  by  no  means  all,  nor  do 
they  give  full  emphasis  to  what  they  do  tell. 


AUTHOR  S    PREFACE.  Vll 

Our  prime  financial  duty  is  the  intelligent  public  regulation  of 
the  money-volume  so  as  to  give  the  dollar  a  constant  purchasing 
power,  yielding  the  creditor  the  same  average  command  over  com- 
modities and  services  that  he  gave,  curtailing  reckless  speculation, 
preventing  panic,  and  exercising  a  beneficent  and  impartial  in- 
fluence upon  wealth  production  and  distribution.* 

3.  In  performing  this  duty,  what  sort  of  money  may  be  used,  and 
what  sort  should  be  used?  The  answer  seems  to  be  that  gold  or 
silver  or  both  may  be  used3  with  paper,  redeemable  or  irredeema- 
ble— monometalism,  bimetalism,  co-metalism  or  greenbacks  pure 
and  simple.  The  latter  would  seem  to  be  the  most  perfect  plan. 
It  is  useless  to  dig  gold  to  do  what  regulated  paper  will  do  as 
well  or  better,  and  the  immediate  profit  to  the  government  on 
paper  issues  to  replace  the  metals  (over  1,000  millions),  would 
probably  pay  for  the  Spanish  War  several  times  over.  The  best 
money  all  round,  appears  to  be,  not  coin  or  paper  on  a  metallic 
base,  nor  currency  on  a  paper  base,  but  paper  money  on  a  com- 


(2)  (See  Chapters  II  and  III.)  This  second  doctrine  also,  that  the  dollar 
should  be  constant  in  its  purchasing  power,  may  be  held  along  with  diverse 
views  about  gold  and  silver,  paper  money,  intrinsic  value,  etc.,  and  is  In 
fact  held  by  men  of  such  widely  different  opinions  as  Pres.  Andrews, 
Professor  Marshall,  Pres.  Will,  Wm.  J.  Bryan,  Fonda,  Walker,  Mill,  Ri- 
cardo,  Henry  Winn,  Prof.  Bemis,  Prof.  J.  Allen  Smith,  Prof.  Laughlin, 
etc.,  etc. 

(3)  The  metals  could  not  be  used  as  the  standard  of  course.  General 
prices  cannot  be  kept  steady  in  that  way.  Only  the  multiple  standard  can 
keep  the  price  line  level  or  the  purchasing  power  of  the  dollar  constant. 
But  gold  and  silver  could  be  used  as  money  of  circulation  and  redemption 
provided  the  whole  currency,  metallic  and  all  were  regulated  in  accordance 
with  the  multiple  base. 

The  multiple  standard  steady  money  plan  outlined  in  President  B.  B. 
Andrews'  "Honest  Dollar,"  edition  of  1889,  p.  36  to  42,  contemplates  the 
continuance  of  gold  and  silver  redemption,  but  the  metals  cease  to  be  the 
real  standard  or  regulating  base  of  the  currency.  The  fact  that  the  notes 
issued  were  redeemable  in  metal  even  at  a  fixed  weight  would  not  pre- 
vent the  exercise  of  considerable  control  over  prices  by  means  of  injecting 
notes  into  the  circulation  or  withdrawing  them  therefrom.  There  is  a  good 
deal  of  friction  and  inertia  about  metallic  redemption  in  practice.  And 
to  a  considerable  extent  the  volume  of  circulation  can  be  changed  by  the 
issue  or  withdrawal  of  notes.  Prices  may  be  influenced  in  this  way  and  the 
value  of  gold  itself  altered.  One  of  the  plans  described  by  Professor  Mar- 
shall in  the  Contemporary  Review,  Vol.  51,  also  involves  metallic  redemption 
by  such  weight  of  bullion  as  is  equal  in  value  to  the  standard  multiple 
unit,  at  the  market  price  of  bullion  at  the  time  of  redemption.  Careful 
consideration,  however,  has  led  me  to  the  conclusion  that  metallic  redemp- 
tion is  not  needful,  service  redemption  being  entirely  sufficient.  (See  note 
in  Professor  Marshall's  article  just  referred  to,  and  Chapter  II  of  this 
book.)  Fixed  weight-redemption  could  only  be  worked  within  limits.  It 
would  be  liable  to  serious  disturbance  from  foreign  influence  and  from 
speculation,  etc.,  a  promise  to  redeem  in  a  fixed  amount  of  any  commodity 
puts  a  premium  on  cornering  that  commodity. 

Variable  redemption  in  bullion  at  its  market  value  in  the  standard 
multiple  unit  would  be  free  from  the  dangers  of  fixed  weight  redemption, 
but  it  does  not  seem  necessary  or  wise  to  pick  out  any  one  or  two  commo- 
dities for  redemption  purposes  under  the  multiple  standard.  A  bill  is 
redeemed  every  time  it  buys  any  commodity  or  service  or  pays  any  debt 
or  tax.  When  the  government  gives  a  bill  the  legal  tender  quality,  it 
promises  that  the  bill  shall  be  redeemed  in  any  desired  commodities  or 
services  at  their  market  value  and  that  Is  all  the  redemption  requisite. 
Such  redemption  and  a  regoiaticn  of  volume  to  keep  the  price  line  steady 
by  the  multiple  standard  will  give  us  the  ideal  money. 

Once  establish  a  system  of  public  money  under  reasonable  regulations, 
and  there  is  little  doubt  it  will  be  honestly  and  efficiently  administered. 
The  Treasury  Department  has  a  reputation  for  accuracy,  honesty,  and  effi- 
ciency, that  is  above  reproach  in  respect  to  all  matters  wherein  its  duties 
have  been  clearly  and  definitely  prescribed.  The  maintenance  of  a  uniform 
price  level  is  a  matter  so  clear  und  simplo  and  the  processes  would  be  so 
easily  watched  and  checked,  that  there  is  little  likelihood  of  administrative 
difficulty.  (See  Chapter  III.) 


Vlll  AUTHOR  S    PREFACE. 

modity  base.  While  it  is  true,  however,  that  gold  or  silver  or 
both,  may  be  used  for  money  and  redemption  under  a  steady  money 
plan,  yet  it  must  be  carefully  noted  that  they  cannot  be  used  as 
standards.  The  only  possible  constant  in  exchange  is  the  com- 
modity base  or  multiple  standard,  and  if  money  is  to  be  kept 
steady  the  gold  or  silver  coins  or  paper  bills  or  whatever  else  is 
used  as  money  must  be  regulated  in  reference  to  the  multiple 
standard,  and  kept  in  harmony  with  it.  This  constant  base  can- 
not be  represented  by  any  one  or  two  commodities,  especially  those 
so  prone  to  irruptions,  spasms,  heart-failures,  and  booms  as  gold 
and  silver  appear  to  be,  and  subject  at  bottom  to  the  law  of  di- 
minishing return.  Men  have  tied  justice  and  prosperity  to  a  golden 
kite  dreaming  it  was  the  solid  rock.  A  change  in  the  value  of  iron 
or  copper  may  cause  disturbance  but  does  not  throw  the  whole 
industrial  system  out  of  gear.  A  private  monopoly  of  coal  mines 
or  iron  or  copper  mines  is  bad  enough,  but  a  monopoly  of  the 
money  base  is  infinite^  worse.  A  change  in  the  value  of  gold 
throws  the  wealth  of  those  who  own  the  products  and  property 
of  the  country  into  the  hands  of  those  who  own  the  dollars,  or 
vice  versa;  varies  the  share  of  production  that  goes  to  labor,  and 
alters  the  value  of  every  debt.  Platinum  doubled  in  value  recently 
without  producing  any  commercial  disturbance.  A  true  money 
system  would  be  as  little  affected  by  nights  of  gold  as  by  nights 
of  platinum. 

The  question  of  a  wholesale  replacement  of  metals  by  irre- 
deemable paper,  important  though  it  is,  is  nevertheless  of  minor 
moment  compared  to  the  larger  question  of  regulating  the  money- 
volume.  Give  us  public  management  of  the  money  movement,  aim- 
ing to  keep  the  dollar  steady  and  the  price  line  level,  and  the 
main  object  will  be  accomplished.  Yet  it  appears  quite  clear  that 
when  gold  has  lost  its  importance,  as  it  would  under  such  regu- 
lation,— \vhen  fortunes  are  no  longer  to  be  made  by  its  changes 
of  value,  it  would  lose  the  support  of  those  who  defend  it  now, 
and  it  \vould  be  seen  that  a  currency  consisting  entirely  of  irre- 
deemable paper  and  subsidiary  coin  is  more  economical  and  more 
secure  from  disturbance  by  changes  in  mining  product  or  foreign 
monetary  policy,  or  other  cause  of  variance. 

During  the  greenback  movement  years  ago,  I  read  a  speech  by 
Wendell  Phillips,  in  which  he  took  strong  ground  in  favor  of  an 
irredeemable  paper  money.  I  had  a  very  high  opinion  of  the 
famous  anti-slavery  orator,  but  this  pamphlet  considerably  injured 
his  reputation  so  far  as  I  was  concerned.  I  said.  "A  man  who 
imagines  that  the  government  can  make  something  out  of  noth- 
ing, or  give  enormous  value  to  bits  of  paper  by  stamping  some 
words  on  them,  is  evidently  subject  to  such  delusion  that  it  will 
not  do  to  rely  very  much  on  his  mental  processes."  And  yet,  a 
few  years  later,  on  making  a  more  thorough  study  of  the  finan- 
cial question,  I  came  to  see  that  this  judgment  of  mine  was  based 
upon  absence  of  information.  I  found  that  substantially  all  the 
standard  economists  agreed  with  Phillips  that  government  could 


IX 

give  exchange  value  to  bits  of  paper  by  stamping  words  upon  them, 
making  them  legal  tender  for  all  debts,  public  and  private,  and 
limiting  their  volume,  whether  they  were  redeemable  or  not;  that 
the  sole  essentials  of  sound  money  are  receivability  and  limitation 
of  volume,  "intrinsic  value,"  or  value  for  other  purposes  than  those 
pertaining  to  money  not  being  requisite  to  money,  which  is  not 
desired  for  any  "intrinsic"  utility,  but  as  a  means  of  obtaining 
commodities  and  services,  a  method  of  accounting  like  checks  and 
bank  books,  a  title  to  property  like  deeds  and  mortgages, — func- 
tions it  will  perfectly  perform  if  generally  receivable  and  limited 
in  volume,  whether  it  be  made  of  gold  or  silver  or  paper.  I  found 
that  history  confirmed  the  conclusions  of  the  economists,  and 
Phillips  became  to  me  once  more  the  sage  and  prophet  I  had 
thought  him  in  my  boy  wood. 

4.  I  still  think,  however,  that  the  Greenback  movement  was  a 
mistake.     Greenbacks   unregulated   might   be   worse   than   present 
monies,  and  the  Greenbackers  offered  no  plan  for  efficient,  intel- 
ligent regulation. 

5.  The  free  silver  movement,  I  think,  is  another  mistake.     It  is 
wasting  the  time  and  thought  of  the  people  on  a  comparatively 
unimportant  matter.     Even  if  all  its  supporters  claim  for  it  is  true, 
it  would  amount  to  very  little — a  mere  temporary  palliative,  soon 
exhausting  its  predicted  power  to  raise  prices,  not  attaining  jus- 
tice, not  preventing  panics,  not  achieving  any  intelligent  regula- 
tion in  the  interests  of  the  public,  not  reaching  the   sources   of 
financial  difficulty. 

6.  There  is  another  movement  more  to  be  regretted  than  either 
of  those  just  named.     I  mean  the  movement  to  retire  the  national 
notes  and  give  the  whole  money  field  to  the  banks.4 

The  people  are  asked  to  retire  completely  from  the  money  ques- 


(4)  The  reasons  given  for  this  movement  are  chiefly  two:  1.  The  need 
of  an  elastic  currency,  the  bond  basis  necessary  for  National  Bank  uocor- 
having  gradually  failed  as  the  National  debt  has  diminished.  2.  The  ad- 
visability of  putting  a  stop  to  the  working  of  "the  endless  chain."  As  for 
elasticity,  the  kind  secured  is  not  the  kind  desired.  A  money  that  expands 
when  there  is  already  too  much  in  the  field,  and  contracts  when  there  is 
too  little,  is  indeed  elastic,  but  not  commendable.  The  kind  of  elasticity 
to  be  sought  in  money  is  one  that  will  lead  it  to  expand  on  notice  of 
stringency,  and  to  contract  on  notice  of  surplusage.  The  first,  or  repre- 
hensible sort  of  elasticity,  is  what  the  bank  note  schemes  will  give  us. 
The  second,  or  desirable  elasticity  is  the  kind  that  will  belong  to  a  National 
Multiple  Standard  Money. 

As  for  the  endless  chain,  the  proper  way  to  get  rid  of  its  burdens  would 
be  to  adopt  irredeemable  National  paper,  which,  with  reasonable  regula- 
tion, would  possess  all  the  valuable  monetary  qualities  that  belong  to 
gold,  without  Its  weight,  or  its  wobbles,  its  speculative  tendencies,  bond 
proclivities,  or  foreign  affinities. 

The  scheme  of  retiring  the  Greenbacks  and  giving  the  banks  the  power 
to  issue  redeemable  notes  of  their  own  would  still  subject  the  Government 
to  e.ndless  chain  processes  so  far  as  the  Government  stood  behind  the 
notes,  and  if  the  Government  did  not  guarantee  them,  their  security  would 
be  defective,— a  substitution  of  bank  promises  for  Government  promises,— 
a  substitution  of  Drivate  paper  imperfectly  secured  and  without  the  legal 
tender  quality  necessary  to  independent  circulatory  power,  in  place  of  public 
money  with  the  best  possible  security,  the  National  guarantee  of  full  legal 
tender  in  its  own  right,  or  of  redemption  in  coin  legal  tenders, 
or  both.  So  far  as  the  Government  is  behind  the  bills  you  have  the  endless 
chain  possibility,  and  so  far  as  the  Government  is  not  behind  them  you  have 
the  \yild  cat  principle  of  private,  non-legal  tender  bills,  issued  on  private 
security. 

Who! her  the  notes  are   secured   wholly   by   the  individual   bank   issuing 


x  AUTHOR'S  PREFACE. 

tion,  and  hand  over  to  the  banks  even  that  part  of  the  currency 
which  now  belongs  to  the  Nation.  This  is  fundamentally  wrong. 
The  powers  of  private  banks  should  be  diminished  rather  than  in- 
creased. Indeed  it  may  be  confidently  affirmed  that  if  the  people 
are  to  realize  the  fullest  benefits  of  a  wise  monetary  system,  the 
banks  must  become  public  as  well  as  the  management  of  the 
money-volume.  It  is  not  absolutely  essential  to  control  credits 
in  order  to  control  prices,  for  the  expansion,  and  contraction  of 
credits  can  be  conteracted  and  overcome  by  a  sufficient  change 
in  the  money  volume.  But  it  would  be  of  great  advantage  to  the 
people  if  loans  and  credits  were  managed  in  the  public  interest 
as  well  as  the  money  volume.6 

them,  or  are  secured,  to  a  certain  extent,  by  a  two  per  cent,  or  ten  per  cent, 
bank  note  redemption  fund,  to  which  all  the  banks  contribute,  the  principle 
is  the  same,  a  resort  to  defective  security.  The  little  margin  of  reserves 
and  redemption  funds  of  one  bank  or  any  group  of  banks,  or  all  the  banks, 
may  be  easily  swept  away  in  a  crisis,  and  though  there  may  be  assets  left 
on  which  outstanding  notes  are  a  lien,  the  uncertainty,  difficulty,  and 
delay  of  collection,  will  bring  again  the  complex  caleulations  of  the  old  wild 
cat  days,  and  merchants  may  have  to  spend  their  days  ciphering  out  the 
value  of  bank  notes  presented  to  them  or  paid  out  by  them.  The  very 
possibility  of  trouble  with  bills  left  out  too  long  in  time  of  panic  would 
make  men  run  for  gold  on  slight  intimation  of  financial  embarrassment. 
No  one  bank  nor  group  of  banks,  nor  all  the  banks  can  offer  security 
approaching  the  solidity  of  National  security.  The  Government  must  guard 
the  notes  or  else  it  must  issue  them  itself  with  its  legal  tender  stamp 
upon  them. 

However  the  plans  for  redeemable  notes  are  varied,  the  substance  is 
always  the  same.  It's  a  choice  between  wild  cat  and  endless  chain.  The 
bank  notes  not  being  legal  tender,  must  rest  on  redemption  in  something 
that  is  legal  tender  and  therefore  will  not  be  thoroughly  reliable  money 
unless  the  Government  guarantees  their  payment  on  demand.  If  the  Gov- 
ernment is  to  be  behind  the  notes  it  might  as  well  own  them.  It  is  folly 
for  the  nation  to  guarantee  bills  (as  in  the  Gage  plan)  and  then  let  the 
banks  issue  them  for  their  private  profit.  And  if  the  Government  does 
not  guarantee  them,  the  bills  are  merely  private  paper,  and  in  times  of 
panic,  when  reliable  money  is  most  needful,  no  one  could  tell  whether  the 
bank  notes  were  worth  anything  or  not,  They  would  have  no  legal  tender 
quality  to  give  them  an  independent  value  of  their  own,  and  a  speculative 
crash,  or  fall  of  prices,  with  a  panic  run  for  redemption,  might  exhaust 
the  redemption  fund  and  gold  reserves  of  the  bank,  and  the  whole  margin 
of  security,  leaving  the  outstanding  notes  redemptionless.  And  when  a 
thing  has  no  legal  tender  or  general  receivability  in  its  own  right,  and  can 
not  be  redeemed  in  something  that  has  such  legal  tender  or  receivability. 
it  is  not  good  money.  We  do  not  want  either  wild  cat  bank  notes  or  suction 
pipes  from  the  public  vaults  to  Wall  Street  and  Europe.  The  escape  from 
both  lies  in  a  National  currency  divorced  from  coin,  carefully  regulated 
in  volume,  and  enforced  in  the  courts  as  a  full  legal  tender. 

(5)  Our  Government  already  does  a  large  business  in  money  transfers, 
and  there  is  no  reason  why  it  should  not  receive  deposits  and  make  loans. 
Nearly  all  the  civilized  nations  except  the  United  States  have  postal  banks, 
the  powers  of  which  will  inevitably  be  gradually  enlarged  until  they  in- 
clude the  whole  range  of  ordinary  banking  functions.  The  question  is 
simply  this:  Shall  we  be  content  with  private  banks  run  for  the  benefit 
of  a  few  or  shall  we  have  public  banks  run  for  the  benefit  of  all? 

Postal  banks  will  make  the  people's  money  absolutely  safe,  will  make 
the  habit  of  saving  more  general,  will  help  to  secure  financial  independence 
for  wage-workers,  will  bring  hoarded  money  into  circulation,  increase  the 
actual  capital  of  the  country,  and  reduce  the  current  rate  of  interest.  If 
the  Government  controls  credit  as  well  as  money  volume,  it  will  not  have 
to  contend  with  the  accidents  and  schemes  of  expansion  and  contraction  of 
credits  incident  to  private  control.  Credit  changes  will  naturally  be  less 
than  now  because  the  multiple  money  system  will  do  away  with  some  of 
the  chief  causes  of  credit  change.  And,  on  the  other  hand,  if  the  nation 
through  its  banks  directly  controls  the  movement  of  credit  as  well  as  tho 
money  volume,  it  will  simplify  the  problem  of  keeping  the  dollar  in  har- 
mony with  the  multiple  standard.  To  omit  the  banks  and  their  credits 
from  the  National  Money  System  is  to  leave  outside  a  powerful  disturbing 
influence  to  be  continually  watched  in  order  to  make  the  proper  adjustment 
of  the  money  volume  to  counteract  the  movements  of  credit.  There  appears 
to  be  a  powerful  sentiment  in  favor  of  postals  savings  banks.  Still  greater 
good  will  be  accomplished  by  establishing  postal  banks  with  full  functions 
instead  of  dividing  the  banking  powers. 


XI 

Our  banks  are  organized  for  private  profit,  not  for  the  public 
weal.  In  times  of  rising-  prices  they  naturally  issue  notes  and 
extend  credit  to  the  extent  of  their  power,  thereby  increasing-  the 
"boom.*' 

In  times  of  falling  prices  they  naturally  withdraw  their  notes 
and  credits  in  self  protection,  thereby  producing  or  intensifying 
depression  and  panic.  They  aid  the  rise  of  speculative  excite- 
ment, and  then  in  times  of  danger  and  collapse  they  withdraw 
their  assistance  from  the  people  just  when  they  need  it  most. 
To  diminish  public  money  and  government  action,  and  increase 
bank  money  and  bank  action,  is  to  increase  the  instability  of  the 
money  system,  intensifying  both  speculation  and  panic,  emphasize 
the  evils  of  rising  and  falling  prices,  and  place  the  entire  control 
where  it  will  be  used  for  private  gain  and  not  for  the  public 
good.  The  whole  machinery  and  management  of  money  and  credit 
constitute  a  most  vital  national  interest,  and  should  be  put  into 
the  hands  of  trained  public  servants,  acting  under  careful  regu- 
lations for  the  people's  benefit.  Even  an  ordinary  government 
system  would  make  loans  and  discounts  more  difficult  or  contract 
them  in  times  of  speculative  tendency,  and  in  case  of  stringency 
would  extend  their  loans  instead  of  calling  them  in.  In  England 
and  France  the  great  quasi  public  banks  have  adopted  this  policy 
to  some  extent  with  most  beneficent  results. 

A  solid  National  credit,  regulated  in  the  public  interest,  is  much 
safer  and  better  for  depositors  and  business  interests  than  the 
private  credit  of  any  bank  or  group  of  banks  managed  for  private 
gain;  as  much  safer  and  better  as  National  money  is  safer  and 
better  than  bank  checks  or  drafts  or  any  other  private  money; 
as  much  safer  and  better  as  a  National  army  is  safer  and  better 
than  a  motley  herd  of  corporation  vassals.  Deposits  would  be  ab- 
solutely safe  so  long  as  the  United  States  endures.  National  cred- 
its would  not  shrink  under  threat  of  danger,  thereby  changing 
the  threat  into  reality,  and  changing  perplexity  into  panic,  nor 
would  they  expand  to  boom  dimensions  under  the  stimulus  of 
rising  prices,  or  rich  prospects  for  investments.  Neither  would 
there  be  any  difficulty  in  making  discounts.  Official  bonds,  de- 
ductions from  incomes,  and  other  forms  of  personal  responsibility 
would  make  cashiers  ds  careful  in  the  conduct  of  public  as  of 
private  banking,  more  careful,  perhaps,  because  the  temptations 
of  speculative  gain  would  be  absent. 

Under  a  system  planned  to  secure  the  utmost  benefits  to  the 
people,  we  should  have  Postal  Banks  and  a  National  Money,  in- 
telligently regulated  in  the  interests  of  justice  and  stability.  In 
this  way  the  Government  would  directly  control  not  only  the  move- 
ment of  money  proper,  but  of  credits  also.  The  jagged  form  of 
our  plunging  price  line  would  become  a  smooth  and  solid  path 
that  commerce  could  follow  with  steady  certainty.  There  would 
be  no  panics,  no  cheating  of  debtors  or  creditors,  no  banking  aris- 
tocracy, no  "Invisible  Empire"  scheming  to  control  the  money 
of  the  country  for  private  aggrandizement,  but  a  steady,  just,  re- 


Xll 

liable  dollar,  and  a  democratic  financial  system,  and  the  profit  on 
loans  and  monetary  transfers,  including-  the  unearned  increment 
or  excess  above  reasonable  interest  and  payment  for  services  ren- 
dered, would  be  abolished  or  converted  into  the  public  treasury. 

Speculation,  private  monopoly,  foreign  policy,  and  the  varying 
values  of  gold,  would  no  longer  be  able  to  use  the  money  system 
as  a  means  of  disturbing  the  fair  distribution  of  wealth,  divert- 
ing to  one  class  the  wealth  that  belongs  to  another,  and  jeopar- 
dizing the  National  prosperity  by  slowing  or  stopping  the  wheels 
of  industry  or  driving  them  at  breakneck  speed. 

For  a  summary  of  the  benefits  to  be  derived  from  National 
money  and  scientific  finance,  the  reader  is  referred  to  the  closing 
portions  of  the  second  and  third  chapters  of  this  book. 

FRANK  PARSONS. 
Boston,  Mass. 


CONTENTS. 

Chapter  I. 
PAPEK  MONEY  VINDICATED  BY  HISTORY. 

Sixty  millions  of  Demand  Notes. 

Silver  Certificates. 

The  Crisis  of  1857. 

County  Scrip. 

The  Continental  Money. 

Leather  Money. 

Indian  Money. 

North  Carolina. 

Connecticut. 

New  York,  New  Jersey  and  Pennsylvania. 

Pennsylvania  Paper  Money. 

England. 

France  and  Germany. 

The  Allied  Powers. 

Russia. 

Austria. 

Brazil. 

Bank  of  Venice. 

Fall  of  Rome. 

The  Dark  Ages. 

Discovery  of  America 

A  Metal  Base  a  Builder  of  Debt  and  an  Ally  of  Gamblers. 

Coin  a  Coquette. 

A  Metal  Base  a  Cause  of  Industrial  Crises 

Coin  a  Coward. 

Conclusions. 


Chapter  II. 
THE  BEST  MONEY. 

Purposes  of  Money. 

Measuring  Values. 

Storing  the  Power  of  Purchase. 

Standard  of  Payment. 

Attributes  of  Money. 

Intrinsic  Value. 

The  Only  Essential  Attributes. 

General  Receivabiiity. 

Limitation  of  Volume. 
Steadiness  of  Value. 
Movement  of  the  Money  Volume. 
What  Money  should  be  Adopted. 


CONTENTS. 

Chapter  III. 
THE  MULTIPLE  STANDARD. 

Its  Nature  and  Operation. 
Massachusetts  Multiple  Standard. 
Objections. 
Advantages. 

Chapter  IV. 
THE  AUTHOKITIES. 

President  Frances  A.  Walker. 
President  E.  B.  Andrews. 
Professor  Alfred  Marshall. 

"         W.  Stanley  Jevons. 

"         Simon  Newcomb. 
David  Ricardo. 
Peter  Cooper. 

United  States  Supreme  Court. 
William  Jennings  Bryan. 
Wendell  Phillips. 
Benjamin  Franklin. 
Thomas  Jefferson. 
Abraham  Lincoln. 
For  other  authorities  see  Chapters  I,  II  and  111. 


Appendix  A. 
Appendix  B. 


CHAPTER  I. 

±-APER    MONEY    VINDICATED    BY    HISTORY. 

Paper  money  may  be  based  on  gold  or  silver  or  both,  or 
may  rest  on  the  whole  body  of  commodities  and  values  without 
any  specific  metallic  base.  In  either  case  the  accuracy  with 
which  it  conforms  itself  to  its  base  depends  upon  the  manage- 
ment of  its  volume  and  its  legal  tender  qualities.  Paper  that 
is,  upon  demand,  exchangeable  for  metal  at  a  rate  specified 
by  law  is  said  to  be  "redeemable;"  and  paper  not  exchange- 
able for  gold  or  silver,  at  a  rate  established  by  law,  and  at 
the  option  of  the  holder  in  the  exercise  of  a  legal  right  of 
demand  upon  the  issuer,  is  said  to  be  "irredeemable."  It  is 
more  scientific  to  call  the  first  convertible  and  the  second  in- 
convertible, or  to  call  the  first  dependent  and  the  second  in- 
dependent, for  both  are  really  redeemable  in  any  proper  sense 
of  the  word.  Whenever  a  bill  is  taken  in  payment  for  goods, 
taxes,  or  service  of  any  sort  it  is  redeemed  as  truly  as  when 
it  is  exchanged  for  gold  or  silver.  There  is  a  popular  im- 
pression that  paper  money  is  unreliable  unless  it  is  exchange- 
able for  gold  or  silver  at  the  option  of  the  holder.  Bills  that 
are  not  redeemable  are  clearly  worthless;  and  the  word  re- 
deemable being  confined  by  previous  classification  to  bills 
that  are  exchangeable  for  coin  upon  demand,  it  follows  that 
bills  independent  of  coin  are  lacking  in  the  essentials  of  value. 
By  reasoning  based  on  such  unconscious  monetary  puns  the 
people  are  misled.  Bills  that  are  not  redeemable  (in  goods 
or  service)  are  clearly  worthless,  but  they  may  be  irredeemable 
in  gold  or  silver  and  yet  redeemable  in  goods  and  services  to 
such  extent  that  they  will  be  as  valuable  or  even  more  valu- 
able than  coin. 

The  truth  appears  to  be  that  men  do  not  accept  money 
for  goods  and  services  with  a  view  of  converting  the  money 
into  gold;  they  accept  money  for  goods  and  services  because 


4  PAPER  MONEY  VINDICATED  BY  HISTORY. 

they  know  that  other  men  will  accept  that  same  money  for 
other  goods  and  services,  and  that  it  will  pay  debts  and  taxes. 
Gold  itself  is  received  as  money,  not  as  an  end  but  as  a 
means;  not  because  the  receiver  desires  to  make  use  of  the 
gold  as  such,  but  simply  because  it  is  by  law  and  custom  re- 
deemable in  goods  and  services,  at  a  value  determined  by  the 
limitation  of  its  quantity  and  the  monetary  demand.  Law 
and  custom  impart  the  fundamental  money  quality  of  general 
receivability  in  exchange  and  payment,  and  have  at  other 
times  bestowed  a  money  value  on  bullets,  skewers,  nails,  shells, 
skins,  feathers,  beads,  notched  sticks,  etc.  If  then,  by  law 
and  custom  our  bills  possess  the  qualities  that  give  the  metals 
a  money  value,  if  they  are  redeemable  in  goods  and  services 
and  are  limited  in  quantity — they  will  have  a  monef  value 
of  their  own  whether  exchangeable  for  coin  upon  demand  or 
not.1 

All  great  economists2  emphatically  declare  that  converti- 
bility into  coin  or  bullion  is  not  required  to  maintain  the 
value  of  paper  money,  and  that  legal  tender  paper  "irre- 
deemable" in  coin  may  be  kept  at  any  required  value  simply 
by  the  regulation  of  its  volume.  The  only  use  claimed,  by 
any  scientist  for  metallic  convertibility  is  to  regulate  the 
volume  of  the  circulating  medium,  and  for  this  purpose  there 
are  much  more  perfect  methods,  as  will  appear  hereafter. 

To  reason  and  authority  we  add  the  force  of  fact.  The 
history  of  England,  France,  Russia,  Austria,  Venice,  Brazil 
and  the  United  States  most  clearly  proves  that  independent 
paper  money,  issued  as  a  full  legal  tender  under  a  stable  gov- 
ernment [and  limited  in  volume  to  the  needs  of  business, 
will  not  depreciate,  but  forms  a  far  more  reliable  and  equit- 
able medium  of  exchange  than  coin  or  paper  on  a  metal  base, 
the  value  of  which  is  governed  by  chance  or  private  manipu- 
lation, and  is  therefore  open  to  ruinous  fluctuations. 

If  the  paper  is  not  a  full  legal  tender,  or  if  it  is  issued  in 
too  great  quantity  (more  than  the  growth  of  business  can 
absorb),  or  if  the  government  is  tottering  and  unable  to  en- 


0)  See  Chapter  IT.  for  further  reasoning  on  this  point. 
(2)  See  Chapters  II.,  III.  and  IV. 


PAPER  MONEY  VINDICATED  BY  HISTORY.  5 

force  the  legal  tender  quality,  the  currency  may  depreciate 
in  value,  as  in  the  case  of  the  French  Assignats,  the  Conti- 
nental currency,  the  Confederate  scrip,  the  Colonial  money 
of  Massachusetts,  etc.  The  North  depreciated  most  of  its 
money  during  the  War  of  the  Rebellion  by  denying  it  a  full 
legal  tender  quality,  and  issuing  too  much  of  it — it  was  legal 
tender  except  for  the  payment  of  duties  on  imports  and  in- 
terest  on  public  debt.  There  were,  however, 

SIXTY  MILLIONS  OF  DEMAND  NOTES 

that  were  receivable  for  public  dues  and  they  remained  sub- 
stantially at  par  with  gold  thru  all  the  vicissitudes  of  the  war 
until  they  were  retired. 

The  Acts  of  July  17  and  August  5,  1861,  authorized  the 
issue  of  fifty  millions  of  demand  notes  in  denominations  of 
$5  and  upwards,  bearing  no  interest  and  receivable  for  public 
dues.  The  Act  of  Feb.  12,  1862,  authorized  a  further  issue 
of  10  millions.  TJiese  60  millions  of  notes  were  afterwards 
(March  17,  1862)  made  legal  tender.3 

The  first  demand  notes  were  issued  in  August,  1861,  being 
paid  out  f  or  ^  salaries  at  Washington.  Before  the  suspension 
of  specie  payments,  December  28,  1861,  $33,460,000  of  the 
demand  notes  were  in  circulation,  and  the  whole  amount  au- 
thorized was  issued  prior  to  April  1,  1862.  These  demand 
notes,  not  being  at  the  start  a  legal  tender,  were  received  with 
hesitation  by  merchants  and  shop-keepers.  Railroad  com- 
panies refused  them  and  leading  bankers  in  New  York  would 
not  take  them  except  on  special  deposit.4 

When  the  notes  were  made  a  legal  tender  of  course  these 
difficulties  vanished. 


(3)  Walker,  "Money,"  p.  373,  Bolles  "Financial  Hist.  U.  S.  1861-1885,"  p. 
75,  Gen.  Weaver's  "Call  to  Action,"  p.  214,  John  Jay  Knox  on  United  States 
Notes,  p.  89  et  seq. ;  Statutes  of  the  U.  S. 

(4)  An  interesting  anecdote  is  told  on    page    225    of    Schucker's    life    of 
Secretary  Chase.    "About  the  time  of  the  suspension  of  cash  payments,   a 
wealthy  New  Yorker  came  into  the  possession  of  a  large  sum  approximating 
to  one  million  of  dollars  in  'demand  notes.'    He  offered  them  for  deposit  in 
a  leading  bank  of  New  York,  the  officers  of  which  refused  to  receive  them, 
however,  in  the  ordinary  course  of  business,  or  in  any  other  way  than  as  a 
special  deposit.    Having  no  alternative,  the  gentleman  reluctantly  consented. 
The  demand  notes  being  receivable  for  customs  the  same  as  coin,  kept  pace 
pari  passu  with  the  advance  in  the  price  of  coin,  and  when  the  depositor  in 
the  bank  withdrew  his  deposit  'demand  notes'  were  worth  nearly  or  quite 
one  hundred  and  fifty  per  cent,  premium  measured  in  legal  tender." 


0  PAPER  MONEY  TINDICATED  BY  HISTORY. 

The  notes  were  of  the  size  of  greenbacks  and  were  of  the 
following  form: 


Masbfnston, 

ACT  OF  JULY  17,    1861 

ON    DEMAND    THE 

-- 

PROMISE  TO  PAY  THE  BEARER 


RECEIVABLE   IN    PAYMENT  OF  ALL    PUBLIC  DUES 


Now  note  the  situation;  war;  gold  and  silver  scarce;  specie 
payments  suspended;  greenbacks  issued  for  war  expenses,  a 
legal  tender  except  for  duties  on  imports  and  interest  on  tho 
public  debt;5  and  60  millions  of  demand  notes,  legal  tender 
to  the  same  extent  as  the  greenbacks  plus  the  quality  of  being 
receivable  for  public  dues.  Coin  had  three  utilities  the  green- 
back did  not  possess — coin  could  be  exported,  it  could  pay 
interest  on  the  public  debt,  and  it  could  pay  duties  on  imports. 
The  demand  notes  would  pay  duties  but  could  not  pay  in- 
terest on  the  public  debt,  and  were  not  available  for  exporta- 
tion. What  was  the  result?  I  take  the  answer  from  page  97 
of  the  History  of  the  United  States  Notes  by  John  Jay  Knox, 
the  highest  authority  on  the  subject.6 

PRICE  OF         PRICE  OF 
DEMAND  NOTES       GOLD  IN 
DATE.  IN  GREENBACKS.    GREENBACKS. 

1863    May  10 10014  1033/8 

June  7 101  104y8 

July  5   10514  109% 

August  2   10514  115% 

September  6   108  11914 

October   4    122%  123 

November  1    126%  13114 

December   6    125  132 

1863     January  3    129  134% 

February  7    155  157% 

March  7    153  155y2 


(")  The  act  of  February  25,  1862,  authorized  the  issue  of  150  millions  of 
U.  S.  notes,  "receivable  in  payment  of  all  taxes,  internal  duties,  excises, 
debts  and  demands  of  every  kind  due  the  United  States  except  duties  on 
Imports,  and  of  all  claims  and  demands  against  the  U.  S.  EXCEPT  for  interest 
on  bonds  and  notes,  which  shall  be  paid  in  coin.  Fifty  millions  of  said  notes 
shall  be  in  lieu  of  the  demand  treasury  notes  authorized  by  the  act  of  July 


PAPER  MONEY  VINDICATED  BY  HISTORY.  I 

The  above  data  show  that  the  premium  upon  the  demand 
notes  kept  within  a  very  few  points  of  the  premium  on  gold. 
February  7,  1863,  the  difference  between  the  demand  notes 
and  greenbacks  was  55  points  and  the  difference  between  the 
demand  notes  and  gold  was  but  2£  points. 

The  slight  difference  between  the  "demands"  and  gold  was 
due  to  the  exportable  quality  of  the  latter,  and  the  fact  that 
the  notes  would  not  pay  interest  on  the  bonds.  This  in- 
ability of  the  notes,  together  with  their  power  to  pay  duties, 
caused  their  early  withdrawal  by  the  government.  Mr.  Knox 
says  (p.  90):  "Efforts  were  made  to  retire  them  as  rapidly 
as  possible,  for  as  they  were  receivable  for  duties  they  em- 
barrassed the  government  in  providing  for  the  gold  interest 
upon  the  public  debt.  On  July  1,  1863,  more  than  56  mill- 
ions had  been  retired,  and  a  much  larger  amount  of  legal 
tenders  (with  the  exception  clause)  had  been  placed  in  cir- 
culation." 

Thus  we  sec  what  may  be  effected  by  the  presence  or  ab- 
sence of  the  legal  tender  quality. 

SILVER   CERTIFICATES. 

The  Act  of  February  28,  1878,  provided  that  any  holder 
of  the  coin  (standard  silver  dollars)  authorized  by  the  Act 
might  deposit  the  same  with  the  Treasurer  or  any  Assistant 
Treasurer  of  the  United  States  in  sums  not  less  than  ten  dol- 
lars and  receive  therefor  certificates  of  not  less  than  ten 
dollars  each.  The  coin  deposited  for  or  representing  the  cer- 
tificates shall  be  retained  in  the  Treasury  for  the  payment  of 
the  same  on  demand.  Said  certificates  shall  be  receivable 
for  customs,  taxes,  and  all  public  dues.  The  Act  of  August 
4,  1886,  authorized  the  issue  of  silver  certificates  in  denomina- 
tions of  $1,  $2,  and  $5.  In  Circular  No.  123,  issued  by  the 


17,  1861;  which  said  demand  notes  shall  be  taken  up  as  rapidly  as  practicable 
and  the  notes  herein  provided  for  substituted  for  them."  July  11,  1862, 
another  150  millions  were  authorized  and  March  3,  1863,  still  another  issue  of 
equal  amount. 

(6)  John  Jay  Knox  graduated  from  Hamilton  College  in  1849,  was  a 
banker  and  bank  officer  till  1862,  when  he  received  a  treasury  appointment 
from  Secretary  Chase;  in  1867  he  became  Deputy  Comptroller  of  the  Cur- 
rency; in  1872  he  was  appointed  Comptroller  and  held  the  office  till  1884, 
when  he  resigned  and  became  President  of  the  National  Bank  of  the  Re- 
public in  New  York.  His  History  of  the  U.  S.  Notes  was  published  in  1884 
by  Chas.  Scribner's  Sons. 


8  PAPER  MONEY  VINDICATED  BY  IIISTOKY. 

United  States  Treasury  Department,  July  1,  1896,  and  signed 
by  John  G.  Carlisle,  Secretary  of  the  Treasury,  we  find  on 
page  11  the  following  statement: 

"Silver  certificates  have  practically  taken  the  place  in  cir- 
culation of  the  standard  silver  dollars  which  they  represent. 
The  amount  outside  the  Treasury  July  1,  1896,  was  $331,- 
259,509,  while  the  amount  of  standard  silver  dollars  outside 
the  Treasury  was  only  $52,175,998.  Neither  silver  certi- 
ficates nor  silver  dollars  are  redeemed  in  gold."7 

Yet  these  silver  dollars  and  certificates  pass  at  par  with 
gold.  Why  ?  Simply  because  they  are  legal  tender  for  debts, 
duties  and  taxes,  and  are  not  issued  in  excess.  No  one  takes 


(7)  There  is  a  popular  impression  that  silver  certificates  are  redeemed  in 
gold.  This  has  arisen  from  confusing  the  Treasury  Notes  authorized  by  the 
act  of  July  14,  1890,  known  as  the  "Sherman  Act,"  by  which  the  Secretary 
Qf  the  Treasury  was  directed  to  buy  4%  million  ounces  of  silver  per  month 
at  the  market  price  and  pay  for  the  same  with  Treasury  notes  redeemable 
on  demand  IN  COIN  (gold  or  silver  in  the  discretion  of  the  Secretary)  and 
legal  tender  for  all  debts,  public  and  private  except  where  otherwise  pro- 
vid.ed  in  the  contract.  The  purchase  clause  of  the  act  was  repealed  Novem- 
ber 1,  1893,  up  to  which  date  $155,931,002  Treasury  notes  had  been  issued 
under  the  Sherman  law.  "The  amount  of  Treasury  notes  redeemed  in  gold 
up  to  the  close  of  the  fiscal  year,  1896,  was  $80,073,325,  and  the  amount  re- 
deemed in  standard  silver  dollars  was  $26,247,722."  (Carlisle  Circular  U.  S. 
Treasury  No.  123  p.  12.)  On  March  1,  1897,  the  Treasury  reported  $85,546,621 
of  these  Treasury  notes  in  circulation.  They  are  redeemable  in  gold  or  silver 
at  the  Secretary's  discretion,  but  the  $363,709,501  of  silver  certificates  issued 
under  the  laws  of  February  28,  1878,  and  August  4,  1886,  are  not  redeem- 
able in  gold;  the  law  does  not  authorize  their  redemption  in  anything  but 
silver  and  they  are  not  redeemed  in  anything  but  silver.  On  page  328  of 
"Coinage  laws  of  the  United  States"  published  by  authority  of  the  Senate, 
Secretary  Carlisle  writes  as  follows  in  answer  to  a  request  from  the  Senate 
for  information  as  to  "whether  silver  dollars  or  silver  coin  certificates  have 
been  redeemed  by  the  treasury  department  or  exchanged  for  gold  or  paper 
that  is  by  law  or  practice  of  the  government  redeemable  in  gold:" 

Treasury  Department,  October  17,  1893. 

To  the  President  of  the  Senate: 

The  law  providing  for  the  redemption  or  exchange  of  silver  certificates, 
which  requires  that  such  certificates  shall  be  redeemed  or  exchanged  in  kind 
or  for  standard  silver  dollars,  has,  so  far  as  this  department  has  information, 
been  strictly  complied  with  by  the  treasurer  of  the  United  States  and  the 
various  sub-treasury  offices,  and  no  gold  has  been  given  in  return  for  such 
certificates  or  standard  silver  dollars.  J.  G.  CARLISLE. 

The  Secretary  proceeds  to  state  that  in  New  York  and  San  Francisco  the 
sub-treasurers  have  sometimes  paid  out  paper  that  was  by  law  or  practice 
redeemable  in  gold,  in  payment  for  silver  dollars  or  certificates  deposited 
with  those  offices.  Such  payments  of  gold  paper  were  made  not  as  matter  of 
right  nor  even  at  request  of  the  depositor  of  the  silver,  but  as  a  mere  matter 
of  convenience  to  the  payor,  the  silver  funds  specified  in  the  law  for  the 
redemption  not  being  at  hand  at  the  given  time  and  place.  These  cases  the 
Secretary  says  were  infrequent  and  the  amounts  involved  insignificant.  The 
opposite  sort  of  exchange  has  been  much  more  frequent  and  considerable, 
viz.,  the  payment  of  silver  certificates  and  silver  dollars  ($167,858,132  from 
1880  to  1893)  in  exchange  for  deposits  of  gold  coin,  at  the  request  or  with 
the  willing  assent  of  the  depositor. 

September  10,  1894,  Secretary  Carlisle  wrote: 

"The  department  does  not  redeem  either  silver  dollars  or  silver  certifi- 
cates with  gold."  April  29,  1895,  he  wrote: 

"The  policy  stated  on  page  328  of  the  'Coinage  Laws  of  the  United  States' 
has  been  pursued  by  the  Treasury  Department  ever  since  the  passage  of  the 
Bland  Act."  And  July  1,  1896,  he  said:  "Neither  silver  certificates  nor  silver 
dollars  are  redeemed  in  gold." 


PAPER  MONEY  VINDICATED  BY  HISTORY.  9 

a  silver  dollar  certificate  for  a  dollar's  worth  of  goods  or  ser- 
vice because  it  is  redeemable  in  gold,  for  it  is  not  so  redeem- 
able, nor  because  it  is  redeemable  in  silver,  for  the  silver 
behind  it  is  only  worth  a  little  more  than  fifty  cents.  No,  he 
takes  it  at  its  face  because  he  knows  that  it  will  pay  a  dollar's 
worth  of  debt  and  taxes;  and  that  everybody  else  in  the 
United  States  will  honor  it  for  a  dollar's  worth  of  service  or 
commodities,  which  makes  it  as  good  as  a  gold  dollar,  and 
better,  for  it  is  not  so  easily  lost. 

In  March,  1897,  there  were  in  circulation  $363,709,501 
of-  silver  certificates,  $55,378,762  standard  dollars  and  $60,- 
709,595  subsidiary  silver  coin— a  total  of  $479,797,858  "re- 
deemable" only  in  silver  worth  a  trifle  more  than  fifty  cents  on 
the  dollar,  all  of  it  passing  at  par  with  gold  because  everybody 
knows  it  is  a  good  legal  tender  and  will  pay  their  debts  and 
taxes  as  well  as  gold.  When  a  merchant  or  banker  or  anybody 
else  receives  a  payment  in  bills  he  doesn't  stop  to  see  whether 
they  are  gold  bills  or  silver  bills;  he  only  looks  to  see  if 
they  are  genuine.  He  knows  that  if  they  are  not  counterfeit 
the  government  will  take  them  for  taxes  and  duties,  the  courts 
will  enforce  them  in  satisfaction  of  debt,  and  the  people  will 
take  them  for  goods  and  Cervices  at  their  face  value,  and  that 
is  all  he  wants  to  know  about  them. 

THE  CRISIS  OF  1857. 

The  notes  of  the  suspended  banks  of  !N"ew  York  and  New 
England  remained  almost  or  quite  at  par  after  the  suspension 
of  specie  payments  in  1857. 8 

COUNTY  SCRIP. 

Our  counties  frequently  pay  the  expenses  of  constructing 
public  works  with  county  scrip,  receivable  for  county  taxes, 
and  even  this  paper  money,  with  its  very  limited  legal  tender 
qualities,  passes  at  par,  if  not  too  largely  issued. 

LEATHER  MONEY. 

One  of  the  earliest  mediums  of  exchange  consisted  of  the 
skins  of  animals,  and  from  this  intrinsic  money  was  developed 

(8)  Professor  Dunbar  of  Harvard  in  the  'Quarterly  Journal  of  Economics 
Vol.  6,  p.  333. 


10  PAPER  MONEY  VINDICATED  BY  HISTORY. 

a  system  of  representative  money  consisting  of  small  pieces 
of  leather  usually  marked  with  an  official  seal.  Such  a  cur- 
rency was  long  in  use  in  Russia,  in  China,  in  Carthage  and 
probably  in  Rome  before  the  time  of  Numa.9  With  the 
growth  of  trade  the  transfer  of  skins  and  furs  would  naturally 
be  found  an  inconveniently  bulky  method  of  exchange.  Small 
pieces  might  be  clipped  off,  and  handed  over  as  tokens  of  pos- 
session. By  fitting  into  the  place  from  which  they  were  cut, 
they  would  prove  ownership.  After  the  people  became  accus- 
tomed to  the  circulation  of  these  bits  of  leather  as  money  they 
would  continue  to  circulate  without  regard  to  what  may  have 
become  of  the  skins  from  which  they  were  cut,10  and  a  repre- 
sentative money  was  evolved  from  the  use  of  skins  and  furs 
under  the  operation  of  the  same  laws  that  in  later  days  de- 
veloped paper  money  and  money  of  account  as  substitutes  for 
gold  and  silver,  in  order  to  avoid  the  trouble  and  risk  of 
handling  the  precious  metals,  the  difficulty  of  obtaining  them 
in  sufficient  quantity,  and  the  expense  and  burden  of  keeping 
them  safely.11 

INDIAN    MONEY. 

When  the  Mayflower  touched  New  England  the  pilgrims 
found  the  Indians  using  wampum,  or  black  and  white  beads 
made  of  clam  shells  and  periwinkle  shells,  as  a  medium  of 
exchange.  The  pilgrims  adopted  this  Indian  money  and  it 
became  the  chief  currency  of  the  early  settlers.12 

Another  sort  of  money  used  by  the  Western  Indians  teaches 
a  lesson  our  people  have  shown  less  power  to  learn.  I  heard 
it  described  when  a  boy  by  an  Indian  orator  who  had  been 
educated  in  our  Eastern  colleges  and  who  lectured  in  a  most 
interesting  manner  on  the  customs  of  his  people.  He  said 
that  when  a  man  did  a  day's  work  for  the  government  the 
chief  cut  a  notch  in  a  stick  and  gave  it  to  the  worker,  and  that 
notched  stick  would  buy  a  day's  work  from  any  other  Indian, 
or  pay  for  a  day's  work's  worth  of  the  provisions  and  stores 


(9)  Jevons  Money  and  the  Mechanism  of  Ex.,  pp.  20,  196-7.    M.   Bernard- 
akis'  Journal  des  Economistes,  Vol.  xxxiii.  pp.  353-370. 

(10)  Ibid. 


(u)  Jevons'  Money  &  Mechanism  of  Ex.  pp.  200-1. 
(12)  Prof.  Sumner's  His 


History  of  Amer.  Currency. 


PAPER  MONEY  VINDICATED  BY  HISTORY.  11 

belonging  to  the  tribe,  as  the  product  of  property  they 
jointly  owned,  or  purchased  with  the  proceeds  from  sales  of 
their  land,  etc.,  or  produced  or  procured  by  their  joint  efforts. 
Here  was  a  money  without  a  metallic  base,  not  convertible 
into  coin,  redeemable  only  in  goods  and  services,  and  yet  it 
kept  its  value  and  did  justice  in  exchanges,  because  (1)  it 
was  legal  tender  by  custom;  (2)  the  volume  of  genuine  notches 
was  limited  by  the  method  of  issue  and  redemption;  and  (3) 
as  the  speaker  stated  with  peculiar  emphasis,  "No  Indian  was 
ever  known  to  counterfeit  or  inflate  the  currency." 

NORTH  CAROLINA. 

Hon.  John  C.  Calhoun  said  in  the  United  States  Senate  in 
1838: 

"JSTorth  Carolina,  just  after  the  Revolution,  issued  a  large 
amount  of  paper,  which  was  made  receivable  in  dues  to  her ; 
it  was  also  made  a  legal  tender,  but  which,  of  course,  was  not 
made  obligatory  after  the  adoption  of  the  Federal  Constitu- 
tion. A  large  amount — say  between  four  and  five  hundred 
thousand  dollars — remained  in  circulation  after  that  period, 
and  continued  to  circulate  for  more  than  twenty  years  at 
par  with  gold  and  silver  during  the  whole  time,  with  no  other 
advantage  than  being  received  in  the  revenues  of  the  State, 
which  were  much  less  than  one  hundred  thousand  dollars  per 
annum.13 

CONNECTICUT. 

In  early  years  Connecticut,  like  Massachusetts  and  Rhode 
Island,  had  overissued  bills  of  credit,  and  had  suffered  from 
their  depreciation.  She  was  one  of  the  States  prohibited  by 
Parliament  in  1751  from  issuing  legal  tender  paper,  and  for 
twenty  years  she  kept  her  commerce  on  a  specie  base.  Be 
tween  October  1771  and  October  1774,  however,  she  issued 
£39,000  in  bills  for  the  expenses  of  government,  seasonable 
and  sufficient  taxes  being  provided  for  their  redemption. 
These  "irredeemable"  bills  were  not  even  a  legal  tender  ex- 
cept for  taxes,  and  yet  "as  they  did  not  exceed  the  sums 


(13)   "Money  of  Nations,"  p.  65,  and  Arena,  February,  1894,  p.  366. 


12  PAPER  MONEY  VINDICATED  BY  HISTORY. 

required  by  the  trade  of  the  Colony,  they  did  not  depre- 
ciate."14 

NEW   YORK,    NEW  JERSEY   AND   PENNSYLVANIA 

during  their  Colonial  days  possessed  an  independent  paper 
money  that  did  not  depreciate  until  the  English  Parliament 
destroyed  its  legal  tender  quality.15  The  fullest  data  are  ob- 
tainable in  relation  to  the  paper  of  Pennsylvania,  which  will 
therefore  be  taken  as  an  example  of  the  financial  policy  of 
the  middle  colonies  before  the  Revolution. 

PENNSYLVANIA  PAPER  MONEY. 

For  half  a  century,  beginning  in  1723,  the  colony  of  Penn- 
sylvania had  an  independent  or  "irredeemable"  paper  money, 
which  did  not  depreciate  but  kept  its  value,  and  was  an  im- 
portant factor  in  the  unparalleled  prosperity  of  the  colony 
during  the  period  named.  The  money  was  issued  and  the 
whole  financial  system  managed  directly  by  the  Government. 
Some  of  the  money  was  loaned  at  low  interest  on  the  security 
of  lands  and  houses,  a  part  of  the  principal  being  repaid  each 
year  with  the  interest.  The  rest  of  the  money  was  issued  in 
payment  of  salaries  and  other  public  expenses.  The  bills  were 
not  redeemable  in  gold  or  silver,  but  were  made  full  legal 
tender,  and  not  being  issued  in  excess  of  the  needs  of  business, 
they  did  not  depreciate.16 

(14)  Dr.  Bronson's  Connecticut  Currency,  p.  84. 

(1B)  The  prices  of  some  exported  articles  varied  considerably  after  the 
middle  of  the  18th  century  in  consequence  of  changes  in  the  foreign  market, 
but  with  this  exception,  prices  remained  substantially  level  in  the  middle 
colonies  during  the  half  century  of  independent  legal  tender  paper.  Prices 
and  exchanges  were  practically  at  the  same  level  in  New  York  and  New 
Jersey  as  in  Pennsylvania,  while  in  Massachusetts,  Rhode  Island  and  other 
colonies  they  rose  in  1749  to  more  than  six  fold  the  Pennsylvania  rates. 

Franklin's  Works  (Sparks)  Vol.  II.,  p.  351. 

Paper  Currency  of  the  Colonies  by  Henry  Phillips,  Jr.,  1865. 

U.  S.  Notes  by  John  Jay  Knox,  p.  5. 

Walker  on  Money,  pp.  321,  322,  314. 

Hist.  Amer.  Currency  by  Prof.  Sumner,  p.  36. 

(i«)  For  details  see  below,  and  the  following  authorities: 

Franklin's  Works,  edited  by  Jared  Sparks,  Vol.  II.,  pp.  254  to  276. 

"Administration  of  the  Colonies,"  by  Governor  Pownall  of  Massachusetts., 
(London,  1765,  fifth  ed.,  1768). 

"A  Discourse  Concerning  Paper  Money,"  Phil.,  1743  by  John  Webbe. 

Adam  Smith's  Wealth  of  Nations,  1776,  p.  262. 

"Paper  Currency  of  the  Colonies,"  by  Henry  Phillips,  Jr.,  Roxbury, 
Mass.,  1865. 

Annals  of  the  Amer.  Academy  of  Polit.  and  Social  Science,  July,  1806, 
article  by  C.  W.  Macfarlane. 

Pres.  F.  A.  Walker's  book  on  "Money,"  p.  322,  et  seq. 

Hon.  John  Davis,  M.  C.,  in  Arena,  February,  1894. 

Laws  of  Pa.;  Colonial  Records;  Journals  of  Assembly. 

Hazard's  Register  of  Pa. 

Gordon's  History  of  Pa. 

Anderson's  History  of  Commerce. 

Douglass'  Summary. 

Gouge's  History  of  Paper  Money,  Phil.,  1833. 


PAPER  MONEY  VINDICATED  BY  HISTORY.  13 

In  1764  Benjamin  Franklin,  "full  of  years  and  wisdom," 
wrote  of  the  independent  money  of  the  middle  colonies : 

"It  has  continued  now  nearly  forty  years  without  variations 
upon  new  emissions,  tho  in  Pennsylvania  the  paper  money 
has  increased  from  £15,000  to  £600,000  or  near  it.  Nor  has 
any  alteration  been  occasioned  by  the  paper  money  in  the 
price  of  the  necessaries  of  life  when  compared  with  silver."17 

Pennsylvania  was  exempted  from  the  Act  of  Parliament 
passed  in  1751  to  restrain  the  Northern  Colonies  from  issuing 
legal  tender  paper,18  but  in  1764  an  Act  was  passed  in  Eng- 
land "to  prevent  paper  bills  of  credit  hereafter  to  be  issued 
in  any  of  his  Majesty's  Colonies  in  America  from  being  de- 
clared to  be  legal  tender  in  payment  of  money,  and  to  prevent 
the  legal  tender  of  such  bills  as  are  now  subsisting  from  being 
prolonged  beyond  the  periods  for  calling  in  and  sinking  the 
same."19 

A  second  Act  seemingly20  more  stringent  and  imperative 
than  the  first  was  passed  in  1773.  The  result  of  these  laws 
was  a  progressive  contraction  of  the  legal  tender  currency, 
and  a  final  extinction  of  the  full  legal  tender  quality  the  bills 
had  so  long  enjoyed.  The  consequences  were  commercial 
loss,  inconvenience  and  industrial  distress  of  such  severity  that 
according  to  high  authority21  this  parliamentary  destruction 
of  financial  freedom  in  America  was  really  a  powerful  factor 
in  causing  the  compound  discontent  and  resentment  that  pro- 
duced the  revolution. 

Governor  Pownall  of  Massachusetts  said  in  1768: 

"I  will  venture  to  say  that  there  never  was  a  wiser  or 
better  measure — never  one  calculated  to  serve  the  interests  of 
an  increasing  country;  that  there  never  was  a  measure  more 


(«)  Franklin's  Works  (Sparks),  Vol.  II.,  p.  351.  Testimony  that  is  cor- 
roborated by  careful  study  of  the  price  lists  of  the  period,  1723  to  1773,  see 
below.  The  £600,000  named  by  Franklin,  was  more  than  the  outstanding 
circulation  of  Penn.  notes— either  he  did  not  allow  for  withdrawals  or  in- 
cluded bills  of  other  colonies  circulating  in  Pa. 

(18)  Phillips,  p.  23  note. 

(19)  Phillips,   p.   25.    Other  authorities  give  the  date  of  the  act  as  1763 
(Gouge,   p.  23,  Walker,   p.  324).    The  truth  appears  to  be  that  the  act   was 
proposed  in  1763;  reasons  were  given  by  the  Board  of  Trade  for  it,  and  by 
Franklin  and  the  Colonial  Assemblies  against  it  in  1764,  and  it  was  passed 
in  the  latter  year  (Macfarlane,  p.  63,  Phillips,  p.  70  et  seq.,  and  action  of 
N.  J.  Assembly  in  1764  while  the  bill  was  pending). 

(M)  Cobbett's  Parliamentary  History  does  not  give  this  act,  but  it  Is 
referred  to  by  several  authorities.  Gouge  p.  24.  See  also  Davis,  Cooper, 
Twells,  etc.,  Appendix  A. 

(2i)  See  Appendix.  A, 


14  PAPER  MONEY  VINDICATED  BY  HISTORY. 

steadily  pursued  or  more  faithfully  executed  for  forty  years 
together  than  the  loan  office  in  Pennsylvania,  founded  and 
administered  by  the  assembly  of  that  province." : 

THE  CONTINENTAL  MONEY. 

The  total  circulation  of  the  thirteen  colonies  just  before 
the  ^Revolution  was  estimated  at  12,000,000  of  dollars,  be- 
tween 4  and  5  millions  of  it  being  specie.23  In  June,  1775,  the 
Continental  Congress  voted  to  issue  3  millions  of  paper;  inv 
November  3  millions  more;  February,  1776,  4  millions;  May 
and  July,  10  millions.  The  States  also  issued  paper  to  cover 
war  expenses — about  2  millions  in  1775  and  3^  millions  in 
1776. 

Before  the  middle  of  1776,  9  millions  of  Continental  paper 
had  been  issued,  and  before  the  close  of  the  year  the  emissions 
amounted  to  20  millions.  What  was  the  result?  Professor 
Sumner,  of  Yale,  says:  "Continental  paper  for  9  millions 
was  issued  before  depreciation  began.24 

Including  the  State  issues  nearly  12  millions  of  paper  had 
been  put  out  without  depreciation.  On  the  approach  of  dan- 
ger a  considerable  part  of  the  coin  had  vanished,  so  that  the 
total  circulation  was  now  about  21  millions — an  addition  of 
75  per  cent,  to  the  circulating  medium  in  about  a  year's  time, 
changing  the  per  capita  from  $4.28  to  $7.05  without  depre- 
ciation. The  transformation  thus  effected  ivas  equivalent 
to  an  addition  of  $1,200,000,000  to  our  currency  now, 
changing  the  circulation  from  $21  to  $37  per  head. 

There  is  high  authority  for  the  conclusion  that  no  appre- 
ciable fall  in  the  value  of  the  Continental  money  took  place 
until  after  20  millions  of  it  had  been  issued.  The  historian, 
Dr.  David  Kamsay,  after  reciting  the  issues  from  June,  1775, 
to  August,  1776,  says: 

"These  several  emissions  amounting  in  the  aggregate  to  20 
millions  of  dollars  circulated  for  several  months  without  any 


(22)  For  those  who  wish  to  go  more  deeply  into  the  history  of  this 
interesting  matter,  a  fuller  account  is  given  in  Appendix  A.,  p.  161. 

P)  Phillips'  "Paper  Cur.  of  the  Colonies,"  p.  155. 

(24)  "History  American  Currency,"  p.  44,  see  also  Gouge  "History  of 
Paper  Money,"  p.  26,  citing  the  concurrent  testimony  of  Jefferson  and  Paine 
to  the  effect  that  the  issues  exceeded  9  millions  before  depreciation  began. 


PAPER  MONEY  VINDICATED  BY  HISTORY.  15 

depreciation,  and  commanded  the  resources  of  the  country 
for  public  service  equally  with  the  same  sum  of  gold  or  silver. 
The  United  States  for  a  considerable  time  derived  as  much 
benefit  from  this  paper  creation  of  their  own,  tho  without  any^ 
funds  for  its  support  or  redemption,  as  would  have  resulted 
to  them  from  the  free  gift  of  as  many  Mexican  dollars.  But 
there  was  a  point  in  time  and  quantity  beyond  which  this  Con- 
gressional alchemy  ceased  to  operate.  That  time  was  about 
18  months  from  the  date  of  their  first  issue,  and  that  quantity 
about  $20,000,000."25 

Upon  this  statement  of  the  great  historian,  including  the 
State  issues,  25  millions  of  paper  were  issued  before  deprecia- 
tion occurred.  The  circulation  of  the  States  was  nearly 
trebled,  and  yet,  so  intense  were  the  times,  the  Continental 
paper  passed  current  at  its  face  value  thruout  the  greater 
part  of  the  country  till  near  the  end  of  1776.  Such  a  change 
to-day  would  mean  the  addition  of  $2,880,000,000  to  our 
$1,600,000,000  of  circulation! 

The  Continental  Congress  had  no  power  to  tax.  It  did  its 
best,  however,  to  get  the  States  to  tax  themselves  for  the  with- 
drawal of  the  Continental  paper,  so  that  its  volume  might 
not  become  excessive.  The  States  neglected  to  do  this.  Early 
in  the  proceedings,  before  depreciation  began,  Franklin  urged 
that  Congress  should  borrow  back  its  notes  rather  than  unduly 
increase  the  mass  outstanding.  But  his  wise  counsel  was  dis- 
regarded, and  by  the  close  of  1776  depreciation  began,  and 
continued  with  subsequent  issues  until  1781,  when  the  Con- 
tinental paper  stood  at  500  to  1.  The  total  issues  are  stated 
by  the  American  Almanac  for  1830  at  357  millions,  and  by 
the  Merchants'  Magazine  at  387  millions;  but  these  estimates 
include  re-issues,  and  the  true  figure  is  about  242  millions.26 
During  the  same  period,  1775  to  1781,  the  States  issued  about 
209  millions,  so  that  the  total  circulation  of  genuine  notes 
in  1781  was  $460,000,000— 38-fold  the  circulation  of  1775, 
or  a  change  from  $4-28  to  $150  per  head  in  seven  years. 


(*)  History  of  the  United  States.    See   "Finance"  in  the  index,   as  the 
paging  varies  in  different  editions.    See  also  Walker  on  "Money,"  p.  327. 

(26)  Prof.  Sumner's  "Financier  and  Finances  of  the  American  Revolution," 
1891,  Vol.  1,  p.  98,  and  Walker  on  Money,  p.  329,  gives  nearly  the  same  figure. 


16  PAPER  MONEY  VINDICATED  BY  HISTORY. 

The  rise  of  exchange  is  shown  by  the  following  table  taken 
from  Gouge,  p.  26: 

DATE.  EXCHANGE  AT  PHILADELPHIA. 

1777  January 1%  per  cent. 

March  2 

July   3 

1778  January 4 

August    5 

November 6 

1779  January   7,  8,  9 

February    10 

April 12  to  22 

August    20 

1780  January    40,  45 

March    60 

August    65,  75 

November 80,  100 

1781  January    100 

February   100,  120 

March    120,  135 

April    135,  200 

May 200,  500 

There  was  not  the  slightest  hesitation  among  the  people 
about  taking  the  bills  at  any  time — they  circulated  as  lively 
as  ever  at  500  to  1.  On  May  31,  1781,  they  ceased  to  circu- 
late, but  were  afterward  bought  on  speculation  at  from  400 
for  1  to  1000  for  1. 

The  rapid  depreciation  of  paper  from  1776  to  1781  caused 
a  great  deal  of  misery.  Dr.  Eamsey  says: 

"Many  opulent  persons  of  ancient  families  were  ruined  by 
selling  paternal  estates  for  a  depreciating  paper  currency, 
which  in  a  few  weeks  would  not  replace  half  of  the  real  prop- 
erty in  exchange  for  which  it  was  obtained." 

Mortgages,  debts,  rents,  incomes,  were  swept  away;  prop- 
erties changed  hands;  people  could  live  only  by  producing, 
for  money  withered  in  their  hands;  industry  and  diffusion  of 
property  were  favored;  debtors  were  freed  and  creditors 
ruined — results  in  large  part  beneficial,  but  reached  by  an 
unjust  path.  If  the  States  had  taxed  themselves,  or  Congress 
had  taken  Franklin's  advice,  the  currency  might  have  been 
kept  within  reasonable  bounds,  and  diffusion  of  property,  un- 
burdening of  debtors,  etc.,  might  have  been  attained  by  means 


PAPEK  MONEY  VINDICATED  BY  HISTORY.  17 

more  wise  and  just.  It  is  needful  to  remark  that  in  order  to 
sustain  the  currency,  something  more  would  have  been  neces- 
sary besides  the  limitation  of  the  volume  of  notes  issued  by 
Congress  and  the  States  by  taxation  or  borrowing;  viz.:  great 
care  in  the  execution  of  the  bills  would  have  been  requisite 
in  order  to  prevent  imitation,  or  else  a  frequent  recalling  of 
the  circulation  to  weed  out  counterfeits,  or  both;  for  the 
reader  must  not  imagine  that  the  depreciation  of  the  Conti- 
nental money  was  due  entirely  to  over-issue.  Besides  the  ef- 
fect of  over-issuing  genuine  bills,  the  volume  of  money  was 
enormously  increased  and  its  circulation  debased  by  the  sys- 
tematic injection  of  counterfeit  notes.  Bolles  says:27 

"Counterfeiting  was  not  confined  to  individuals.  The 
British  Government  also  embarked  in  the  business.  General 
Howe  abetted  and  patronized  those  who  were  engaged  in 
making  and  pushing  these  spurious  issues  into  circulation. 
In  the  same  papers  which  published  British  official  documents 
and  proclamations  might  be  found  advertisements  like  the 
following: 

'Persons  going  into  the  other  colonies  may  be  supplied  with 
any  number  of  counterfeited  Congress  notes  for  the  price  of 
the  paper  per  ream.  They  are  so  nearly  and  exactly  executed 
that  there  is  no  risk  in  getting  them  off,  it  being  almost  impos- 
sible to  discover  that  they  are  not  genuine.  This  has  been 
proved  by  bills  of  a  very  large  amount,  which  have  been  suc- 
cessfully circulated.'  *  *  *  Persons  accompanying  an 
English  flag  of  truce  are  known  to  have  largely  made  use 
of  the  opportunity  for  disseminating  the  fraudulent  notes; 
emissaries  from  New  York  endeavored  to  obtain  paper  from 
the  mills  similar  to  that  used  by  Congress  for  its  emissions. 
Many  in  Great  Britain  and  elsewhere  believed  that  if  Conti- 
nental paper  money  could  be  destroyed  the  Americans  would 
be  obliged  to  submit,  from  lack  of  funds  to  maintain  their 
cause.  This  is  why  the  British  Government  promoted  so  ex- 
tensively the  business  of  counterfeiting.  But  General  Clin- 
ton wrote  truthfully  in  January,  1780: 


(27)  Financial  History  of  the  United  States,  1774  to  1789,  pp.  151  to  153. 


1 8  PAPER  MONEY  VINDICATED  BY  HISTORY. 

"Every  day  teaches  me  the  futility  of  calculations  founded 
on  its  failure.  IsTo  experiments  suggested  by  your  lordship, 
no  assistance  that  could  be  drawn  from  the  power  of  gold  or 
the  arts  of  counterfeiting,  have  been  left  unattempted.  But 
still  the  currency,  like  the  widow's  cruse  of  oil,  has  not  failed 
the  Congress.  My  hopes  on  this  head,  I  must  acknowledge, 
were  much  higher  twelve  months  since  than  to-day.  "With 
the  appearance  of  an  enormous  quantity,  still  it  is  all  the 
debt  which  the  people  have  to  struggle  with,  and  in  this  view, 
and  when  compared  with  that  of  other  nations,  it  shrinks  into 
a  very  inconsiderable  sum.  I  shall,  nevertheless,  my  lord, 
continue  assiduous  in  the  application  of  those  means  intrusted 
to  my  care;  if  they  cannot  work  its  destruction,  yet  they  can 
embarrass  the  government  and  make  the  carrying  on  of  the 
war  more  precarious,  burdensome,  and  less  energetic." 

Phillips  says:  "A  shipload  of  counterfeit  Continental 
money  coming  from  Great  Britain  was  captured  by  an  Ameri- 
can privateer.7728 

The  Continental  money  did  not  die  a  natural  death.  It 
was  mortally  wounded  on  the  field  of  battle,  while  bravely 
fighting  for  its  country,  from  which  metallic  money  had  fied 
at  the  first  sign  of  danger.  It  won  the  fight  before  it  breathed 
its  last,  and  conquered  Great  Britain  with  all  its  gold  and 
limitless  resources. 

ENGLAND. 

In  1797  the  Bank  of  England,  the  monetary  heart  of  Great 
Britain,  suspended  specie  payments,  and  legal  tender  incon- 
vertible paper  was  the  principal  medium  of  exchange  till 
1821,  when  specie  payments  were  resumed.  For  the  first 
ten  years  and  more  the  ^redeemable77  paper  money  did  not 
depreciate;  afterwards  in  consequence  of  excessive  issues 
prices  rose  considerably.  In  1815  the  battle  of  Waterloo  closed 
the  war  with  Napoleon  and  the  period  of  expansion  came  to 
an  end.  In  1816  England  demonetized  silver  and  began  to 
contract  the  currency  preparatory  to  the  resumption  of  specie 
payments.  Prices  fell  heavily  and  continued  to  fall  until 


(*)  Cont.  Paper  Money,  p.  71. 


TAPER  MONEY  VINDICATED  BY  HISTOE Y.  1 9 

the  middle  of  the  century,  when  the  floods  of  gold  began  to 
pour  in  from  the  newly  discovered  mines  of  California  and 
Australia. 

The  period  of  expanding  currency  1797-1815,  tho  an  epoch 
of  exhausting  war,  was  a  period  of  remarkable  prosperity. 
Merchants,  manufacturers,  [farmers,  laborers,  all  classes  in 
the  community,  prospered  in  a  high  degree,  and  wealth  was 
created  in  a  hitherto  unheard  of  ratio. 

Early  in  the  war  with  France  (which  commenced  in  1793) 
metallic  money  began  to  disappear,  producing  financial  strin- 
gency and  commercial  disaster  till  specie  payments  were  sus- 
pended and  irredeemable  paper  came  to  the  rescue.  The 
paper  money  of  England  enabled  her  to  put  vast  armies  in  the 
field,  to  subsidize  Europe,  to  conquer  Napoleon,  and  to  de- 
velop her  own  resources  to  an  astonishing  extent.  Wm.  Pitt 
said  of  the  suspension  of  specie  payments  that  its  effect  "was 
like  finding  a  mountain  of  gold." 

The  second  period,  1816-1849,  the  epoch  of  contraction 
and  appreciating  gold,  was  one  of  panic  and  industrial  distress. 
The  fall  of  prices  paralyzed  business.  Profits  and  wages 
shrank.  Vast  numbers  of  workers  were  thrown  out  of  em- 
ployment. Eiots  broke  out  in  many  manufacturing  towns, 
and  agricultural  laborers  burned  corn  stacks  and  hay  ricks, 
for  which  some  of  them  were  hanged.  The  ruined  farmers 
petitioned  the  government  for  loans  at  low  interest,  based  on 
land  and  agricultural  products,  but  they  were  told  the  trouble 
was  with  the  tariff — when  that  was  fixed  all  would  be  well. 
But  years  of  tariff  and  no  tariff  were  alike  disastrous.  Prices 
fell  30,  40,  50,  60  per  cent.,  and  harvests  were  abundant,  yet 
the  laboring  classes  were  unable  to  get  bread,  and  famine 
desolated  Ireland.  Hundreds  of  banks  were  ruined,  as  were 
tens  of  thousands  of  enterprising  merchants  and  manufactur- 
ers; and  the  land  holders  of  England,  Ireland  and  Scotland 
were  reduced  in  numbers  from  175,000  to  50,000,  a  change 
precisely  contrary  to  that  produced  by  the  expanding  paper 
of  France  in  the  years  of  the  Revolution. 

The  English  period  of  expansion,  1797-1815,  corresponds 
in  our  own  history  to  the  period  from  1 860  to  1866,  when  the 


20  PAPER  MONEY  VINDICATED  BY  HISTORY. 

suspension  of  specie  payments  and  the  expanding  volume  of 
"irredeemable'7  national  notes  produced  the  same  effects  that 
characterized  the  paper  epoch  in  England.  The  English  per- 
iod of  contraction,  demonetization  of  silver  and  rising  gold, 
1816  to  1849,  corresponds  to  our  period  from  1866  to  the 
present  time  (1897)  and  the  effects  have  been  the  same  as  in 
Great  Britain. 

The  course  of  events  in  England  and  America  in  the  eras 
under  consideration  may  be  broadly  presented  thus : 

CAUSES.  RESULTS. 

Danger.  Financial      stringency      and 

Disappearance  of  coin.  Industrial  distress. 

Suspension    of    specie    pay-     Expanding  money. 

ments  and  issue  of  incon-     Revival  of  business  and  mar- 
vertible  paper.  velous  prosperity. 

Contraction,    demonetization      Scarcity  of  money. 

of    silver  and    resumption     Rising  gold  and  money  and 
of  specie  payments.  obligations  based  on  gold. 

Panic  and  industrial  depres- 
sion. 

In  view  of  the  immediate  revival  of  business  on  the  sus- 
pension of  specie  payments  and  issue  of  irredeemable  notes 
in  1797,  and  the  unparalleled  prosperity  which  England  en- 
joyed at  home  and  abroad  during  eighteen  years  of  expanding 
paper,  in  spite  of  the  heavy  drain  of  the  war,  it  may  seem 
strange  that  England's  statesmen  should  not  have  learned  the 
laws  of  money  sufficiently  well  to  avoid  the  contraction  and 
the  golden  fetters  of  1816  and  following  years.  Perhaps  they 
would  if  it  had  not  been  for  inherited  theories  and  the  in- 
terests of  bond  holders.29 

England  might  have  retained  forever  the  glory  of  1815, 
had  she  continued  the  policy  of  supplying  her  people  with  an 
abundant  but  not  excessive  currency,  raised  the  needed  rev- 


P)  See  the  fuller  account  in  Appendix  B. 


PAPER  MONEY  VINDICATED  BY  HISTORY.  21 

enue  by  graded  income  and  property  taxes,  and  continued 
the  public  employment  and  direction  of  all  the  "surplus" 
labor30  in  the  country,  not  in  army  and  navy  as  during  the  war, 
but  in  the  construction  of  roads  and  public  improvements. 

The  same  remarks  apply  to  our  history  for  thirty  years  past, 
the  evils  of  which  in  very  great  part  would  have  been  avoided 
if  Congress  had  made  all  the  war  notes  a  full  legal  tender 
to  and  from  the  government,  placing  duties  on  imports  and 
interest  on  bonds  on  a  level  with  all  other  payments,  making 
the  people's  money  as  good  as  the  banker's,  and  paying  the 
bond  holders  in  the  same  money  that  was  good  enough  for 
soldiers,  farmers,  mechanics,  merchants  and  manufacturers, 
and  then  had  been  content  to  take  the  funds  of  the  wealthy 
as  well  as  the  lives  of  the  poor  for  the  service  of  their  country, 
establishing  a  graded  income  tax  that  would  have  made  ex- 
cessive issues  of  greenbacks  unnecessary — and,  after  the  war, 
had  increased  the  volume  of  the  currency  (as  France  did  after 
the  German  war  in  '71)  and  entered  upon  public  improve- 
ments, in . order  to  absorb  with  ease  the  labor  freed  by  the 
cessation  of  hostilities,  and  provide  a  currency  equal  to  the 
new  demands  of  a  re-united  North  and  South.31 


FRANCE  AND  GERMANY. 

From  1870  to  1878  France  kept  her  inconvertible  paper 
close  to  par,32  and  finally  reduced  the  premium  on  gold  to 
zero,  not  by  contracting  her  currency  or  resuming  specie  pay- 
ments, but  simply  by  expanding  the  volume  of  her  irredeem- 
able paper  in  judicious  manner.33 

The  war  with  Germany  left  France  in  a  very  serious  condi- 
tion. She  had  been  ravaged  over  nearly  half  her  territory, 
she  had  had  to  maintain  not  only  her  own  army,  but  in  a 


(30)  The  unemployed  are  not   really   "surplus,"   tho  often   spoken   of  as 
such.    There  is  plenty  to  be  done.    The  unemployed  are  simply  out  of  place 
and  out  of  adjustment  in  our  complex  system. 

(31)  The   history  of  England  during  the  periods  above   referred   to   is   so 
important  that  we  give  in  Appendix  B  a  fuller  account  for  those  who  wish 
to  study  the  subject  more  deeply. 

(32\  prof.  Dunbar  In  the  Quarterly  Jour,  of  Economics,  April,  1892,  p. 
333. 

(33)  See  writings  of  Henry  Carey  Baird  and  Baron  Wabnitz,  mentioned 
below,  also  "Money  of  Nations,"  by  Warwick  Martin,  1880,  p.  21. 

3 


22  t>AP£R  MOfrEY  VltfMCATED  BY  HISTORY. 


large  degree  that  of  her  enemy  also.  In  addition  to  the 
presence  of  a  victorious  invader,  her  industries  had  to  stand 
the  shock  of  a  domestic  revolution.  By  the  peace  she  lost 
two  of  her  finest  provinces  containing  a  million  and  a  half 
of  her  most  ingenious  and  industrious  citizens,  and  was  re- 
quired to  pay  5  billion  francs  (one  billion  dollars)  war  in- 
demnity with  5  per  cent,  interest  on  the  debt  each  year. 

Germany  had  suffered  little,  had  only  the  partial  support 
of  her  own  army  to  pay  for,  her  soil  had  not  been  devastated 
by  battle,  she  was  full  of  the  enthusiasm  of  victory  and  con- 
quest, and  exultant  over  the  billions  of  gold  she  was  to  re- 
ceive from  France. 

What  was  the  outcome?  The  French  bankers  made  ad- 
vances to  merchants  and  manufacturers  amounting  to  $36,- 
000,000  during  the  first  fortnight  after  the  defeat  of  the 
French  armies  in  August,  1870,  and  tho  consternation 
had  seized  the  people  at  the  triumph  of  the  German  arms, 
not  one  failure  of  consequence  took  place,  and  the  loans  were 
promptly  repaid.34  In  September,  1870,  specie  payments  were 
suspended  and  the  notes  of  the  Bank  of  France  were  made 
a  legal  tender.  After  the  first  payment  of  coin  to  Germany 
in  1871,  gold  went  to  a  premium  of  1^  per  cent.,  but  the  vol- 
ume of  paper  was  expanded  cautiously  and  the  premium  fell 
and  finally  disappeared.  In  June,  1870,  before  the  war,  the 
circulation  of  the  bank  was  $275,000,000;  by  the  end  of  1870 
it  had  become  $460,000,000;  by  the  end  of  January,  1872,  it 
had  been  expanded  to  $490,000,000  and  the  premium  had 
fallen  to  1  per  cent.;  by  the  end  of  October,  1873,  it  had  been 
further  expanded  to  $614,000,000,  when  the  premium  on 
gold  and  silver  disappeared.  Coin  now  began  to  come  into 
the  country  and  the  bank  began  to  contract  its  paper  volume. 
By  June  25,  1874,  the  withdrawals  amounted  to  $107,000,- 
000.  The  contraction  was  found  to  be  too  great,  bringing 


(M)  A  similar  course  had  been  followed  by  the  bank  in  the  Revolution  of 
1848,  when  the  inconvertible  notes  of  the  bank  were  made  legal  tender  and 
immense  advances  were  made  to  public  resources,  and  to  private  parties 
on  receipts  for  merchandise  stored  in  warehouses  opened  for  the  purpose  by 
decree  of  the  National  Assembly.  These  merchandise  receipts  alone  were 
discounted  to  the  value  of  $12,000,000,  and  the  increase  of  the  currency  re- 
vived business  and  saved  the  nation  from  panic  and  collapse  (H.  O.  Baird, 
"Mouey  and  Bank  Credit,"  1891). 


PAPER  MONEY  VINDICATED  BY  HISTORY.  23 

financial  distress  and  industrial  depression,  especially  at  Paris. 
An  expansion  was  immediately  begun  again  and  kept  up  till 
December  31,  1874,  when  the  paper  volume  had  been  in- 
creased $62,000,000  and  the  specie  $81,700,000  and  pros- 
perity was  fully  restored.  During  the  early  part  of  the  first 
expansion  the  debt  to  Germany  was  completely  paid,  not, 
as  Germany  expected  in  French  gold,  but  in  German  bank 
notes  and  bills  of  exchange  on  Berlin,  Amsterdam,  Frankfurt 
and  other  German  cities  and  on  London.  Nearly  seven-eighths 
of  the  war  indemnity  was  paid  in  this  way,  about  one-eighth 
of  the  seven  being  in  exchange  on  London,  and  the  other  six- 
eights  in  German  notes  and  bills.  The  Germans,  elated  with 
success,  full  of  victory  and  plunder,  bought  with  a  lavish  hand. 
The  French  flooded  Germany  with  advertisements,  sold  their 
wines  and  silks  and  other  luxuries  and  made  the  Germans 
pay  a  large  part  of  the  indemnity  themselves.  The  war  fine 
was  really  paid  in  merchandise  for  which  France  drew  her 
bills  of  exchange  on  the  German  people  who  paid  their  cash 
into  the  German  treasury.  Germany  had  demonetized  gold 
in  1857  and  remained  on  a  silver  basis  until  1871,  when,  rely- 
ing on  the  expected  billions  of  gold  from  France,  she  decreed 
the  establishment  of  the  single  gold  standard.  In  fact,  how- 
ever, she  only  got  $54,600,610  in  gold  and  $48,000,000  in 
silver  from  France,  and  the  outcome  of  the  whole  affair  was 
a  contraction  of  circulation  and  panic  in  Germany,  forty-one 
banking  houses  being  compelled  to  suspend,  while  France  was 
prosperous  beyond  the  dreams  of  any  one  who  saw  her  in  the 
hour  of  defeat.35 

Even  as  late  as  1880  the  bank  had  still  a  large  volume  of 
"irredeemable"  paper.  It  made  no  promise  to  pay  its  notes 
in  coin,  and  yet  they  were  at  par  with  gold,  because  they  were 
by  law  receivable  for  everything  gold  was  receivable  for,  and 
they  were  not  issued  in  excess.36 


C"5)  These  and  many  other  facts  relating  to  this  period  of  French  history 
have  been  given  to  me  by  Henry  Carey  Baird,  the  noted  Philadelphia 
publisher  and  economic  writer  who  studied  the  subject  on  the  ground,  and 
has  written  numerous  accounts  of  the  splendid  achievements  of  French 
banking  in  the  seventies:  "Money  and  Bank  Credit,"  "The  Lesson  of  German 
and  French  Finance,"  "The  Franco-German  War  Fine  of  1871,"  etc.  The 
detailed  official  statement  of  the  Bank  of  France  as  to  the  manner  in  which 
the  indemnity  was  paid  is  of  the  greatest  interest. 

(36)  "Money  of  Nations,"  by  Warwick  Martin,  180,  p.  21.  See  also  War- 
ren's American  Labor,  pp.  22-4. 


2  4  PAPER  MONEY  VINDICATED  BY  HISTORY. 

President  Walker,  writing  in  1876,  says: 

"The  occurrence  of  the  war  with  Germany  in  1870  caused 
a  suspension  by  the  bank,  which  has  lasted  to  the  present 
time;  but  during  all  this  period  the  condition  of  her  circula- 
tion has  constituted  a  triumph  of  sound  finance.  Altho  ir- 
redeemable, her  paper  has  never  been  allowed,  at  any  moment, 
to  become  greatly  in  excess.  The  premium  in  gold  has  never 
gone  above  1.5  per  cent.,  and  during  the  greater  portion  of  the 
period  has  been  five-tenths  of  one  per  cent.,  or  even  less. 
The  failure  of  the  French  armies,'  wrote  the  late  Mr.  Bage- 
hot,  in  November,  1874,  'has  not  been  more  striking  than 
the  success  of  French  banking.'  "37 

Baron  Wabuitz,  a  distinguished  German  author,  says:38 

"France  had,  by  the  war  of  1870,  incurred  a  burden  of 
debt  which  (in  proportion)  far  exceeded  that  of  the  United 
States.  It  had  been  compelled  to  permit  the  issue  of  unse- 
cured notes,  which  up  to  that  time  amounted  to  about  $240,- 
000,000,  was  increased  at  the  very  commencement  of  the  war 
by  about  $160,000,000,  and  in  December,  1870,  received  a 
second  increase  of  about  $60,000,000.  All  these  bank  notes 
were  given  the  quality  of  legal  tender.  *  *  *  Yet  after 
the  conclusion  of  peace  the  financial  administration  had  the 
courage  to  still  further  increase  the  issue  of  notes  in  1871. 
*  *  *  Instead  of  fixing  a  date  for  the  resumption  of  specie 
payments,  France  merely  made  an  arrangement  with  the  bank 
management,  according  to  which,  as  soon  as  the  part  of  the 
national  debt  assumed  by  the  bank  should  be  paid  back  to 
it,  the  forcible  character  of  the  legal  tender  notes  should 
cease.  *  *  *  The  results  of  this  French  financial  policy 
have  been  as  follows:  (1)  The  immediate  reappearance  of 
coin  in  circulation.  *  *  *  (2)  The  par  exchange  of  bank 
notes  when  their  legal  tender  character  was  removed.  (3) 
Increasing  prosperity  of  the  country,  which  is  so  little  af- 
fected by  the  great  commercial  and  financial  crisis  visiting 
the  whole  world,  that  even  the  collapse  of  the  recent  gigantic 
swindling  establishments  of  Philipart  made  scarcely  an  im- 
pression upon  the  public  credit." 

(8T)  "Money,"  p.  366. 

(38)  «The  Oid  standard,"  pp.  25-7. 


TAPER  MONEY  VINDICATED  BY  HISTORY.  25 

"The  contrast  between  the  events  in  France  and  the  opera- 
tions which  the  United  States  permitted  under  similar  antece- 
dent conditions,  is,  as  will  be  confessed,  a  glaring  one.'7 

France  has  experienced  the  bad  effects  of  a  currency  plan- 
lessly  issued,  as  well  as  the  benefits  of  paper  properly  man- 
aged. The  John  Law  episode,  1717-1721,  was  a  scheme  by 
which  12  billions  of  francs  were  loaned  to  the  King  to  pay 
off  his  debts.  The  plan  was  to  make  the  colonial  possessions 
of  France  one  grand  mortgage  to  secure  the  currency.  The 
notes  circulated  at  par  at  first,  but  as  the  volume  became  ex- 
cessive they  sank  in  value.  Even  under  the  best  conditions 
mortgage  notes  could  not  be  converted  into  land  with  suffi- 
cient readiness  to  drain  off  the  excess  of  voluminous 
issues  in  the  interest  of  an  impecunious  and  ignorant 
young  King,  and  when  the  land  relied  on  for  redemption 
of  the  notes  was  across  the  ocean,  in  the  wilds  of  the  Mississ- 
ippi valley,  it  is  easy  to  see  that  people  would  rather  keep 
the  money  than  pay  it  to  the  government  for  such  lands,  and 
so  there  was  nothing  to  call  in  the  excess,  and  the  over-issues 
depreciated  the  currency.39 

The  French  Assignats  put  out  by  the  Revolutionary  Gov- 
ernment, 1790-1796,  were  also  issued  against  land,  and  were 
supposed  to  be  secured  thereby.  The  holders  of  the  notes  had 
a  right  to  purchase  with  them  the  lands  confiscated  from  the 
church  and  emigrant  nobles,  but  tJic  price  of  the  land  was 
not  fixed,  no  proportion  was  established  between  land  and 
paper,  the  holder  of  the  assignats  had  simply  the  right  to 
buy  land  at  its  market  value,  and  as  the  assignats  depreciated 
with  excessive  volume  the  land  rose  in  price,  and  the  security 
was  shown  to  be  merely  a  name.40  Even  if  a  definite  value 
in  assignats  had  been  put  upon  specific  portions  of  land,  the 
convertibility  would  have  been  too  cumbrous  to  constitute 
an  efficient  limitation  on  the  volume  of  a  currency  issued  with 
the  reckless  prodigality  that  characterized  the  Revolution. 
The  land  security  of  Pennsylvania  was  altogether  different; 


f89)  Jervons  on  "Money  and  the  Mechanism  of  Exchange,"  International 
Scientific  Series,  p.  228. 

Walker  on  "Money,"  p.  304. 

Hon.  John  Davis  in  Arena,  June,  1894,  p.  99. 
\*°)  Jevons,  p.  228. 


26  PAPER  MONEY  VINDICATED  BY  HISTORY. 

the  money  was  issued  on  loan  to  those  who  already  owned 
realty,  and  it  had  to  be  paid  back  with  interest  or  the  land 
would  be  taken  by  the  Government.  In  this  way  the  rela- 
tion of  the  notes  to  land  constituted  an  effective  limitation 
upon  their  volume  and  so  prevented  their  depreciation;  but 
in  France  the  relation  of  the  notes  to  land  had  nothing  to  do 
with  the  volume  issued  by  the  Government,  and  little  in- 
fluence in  drawing  off  the  excess  that  was  issued.41  The  issue 
began  in  1790,  and  by  the  beginning  of  1796  over  9  billions 
of  dollars  had  been  issued,42  $7,200,000,000  of  which  were 
in  actual  circulation48 — a  steep  ascent  in  the  space  of  six  years 
from  about  $20  of  money  per  head  to  a  circulation  of  $300 
per  head!  Imagine  a  change  in  six  years  from  our  circula- 
tion of  $1,600,000,000  to  a  circulation  of  $22,000,000,000! 
The  largest  circulation  claimed  for  the  United  States  at  the 
close  of  the  Rebellion  was  $2,000,000,000.  The  assignats 
were  rudely  executed  and  easily  counterfeited.  In  addition  to 
the  overissue  of  genuine  notes,  the  country  was  flooded  with 
counterfeits  from  England,  Belgium  and  Switzerland.  Europe 
was  at  war  with  France  and  made  a  business  of  trying  to*  break 
down  its  money  by  coumiterfeitinig.  The  English  Government 
sought  to  put  down  the  French  Revolution  as  she  had  tried  to 
put  down  the  American!  Revolution — by  forgery.  Wm.  Pitt, 
Prime  Minister  of  England,  organized  and  superintended  the 
business.  Seventeen  factories  were  in  full  operation  in  Lon- 
don with  a  force  of  4001  men,  devoted  to  the  production  of 
false  assignats.  In  May,  1795,  it  was  found  that  12  to  15 
billions  of  francs  of  forged  assigniats  were  in  circulation,44  No 
wonder  the  assignats  sank  to  a  small  fraction  (1-200)  of  their 
nominal  value.  Issued  by  an  unstable  government,  issued  in 
overwhelming  excess,  executed  poorly  and  systematically 
counterfeited  with  tremendous  effect  by  foreign  governments 

(41)  Besides  the  fact  that  no  fixed  relation  existed  between  the  land  and 
the  notes,  there  was  the  further  important  fact  that  the  title  to  the  land  was 
regarded  as  doubtful.  If  the  revolutionary  government  failed  and  the  nobles 
returned  to  power,  the  confiscated  lands  might  be  reconfiscated,  and  those 
who  obtained  estates  by  way  of  redemption  of  their  assignats  might  find  the 
security  worth  less  than  the  paper  on  which  the  assignats  were  printed. 

(4S)  Garnier's  "Traite  de  Finances,"  p.  408. 

(«)  Walker  on  "Money,"  p.  344. 

(**)  "Assignats  and  Mandats,"  by  Stephen  D.  Dillaye,  1877,  pp.  32-33. 

Doubleday's  Financial  Hist,  of  England. 

John  Davis,  Arena,  June,  '94,  pp.  91-2. 

Walker's  "Money,"  p.  345. 


PAPER  MONEY  VINDICATED  BY  HISTORY.  27 

beyond  the  reach  of  the  French  criminal  laws,  they  lacked 
every  element  of  virtuous  paper.  If  the  notes  had  been  care- 
fully executed  in  the  highest  style  of  art,  and  called  in  now 
and  then  to  weed  out  counterfeits,  and  after  seven  or  eight 
hundred  million  dollars  were  issued  the  further  needs  of  the 
government  had  been  met  by  taxation  or  loan,  there  is  every 
reason  to  believe  that  the  notes  would  have  kept  their  value, 
and  prices  would  have  remained  substantially  level.  In  other 
words,  if  the  same  policy  had  been  pursued  in  1790  that  was 
afterward  followed  in  1870,  it  is  probable  that  the  results  of 
1790  would  have  been  similar  to  those  of  1870. 

In  1796  the  Revolutionary  Government  began  to  issue 
territorial  mandates  exchangeable  for  land  in  substantially 
the  same  way  as  the  assignats.  Eight  hundred  millions  were 
to  be  used  in  cancelling  assignats  at  30  to  1,  the  rest  to  serve 
the  government.  They  rose  to  80  per  cent,  of  their  nominal 
value  after  the  first  limited  emission,  but  additional  issues 
sent  them  down  to  1-1000  of  their  face.  They  were  really 
nothing  more  than  assignats  under  another  name;  they  had 
some  value  for  a  time  because  the  withdrawal  of  the  assignats 
at  the  rate  of  30  to  1  materially  diminished  the  volume  of  the 
circulation.  The  paper  of  the  revolution  went  down  with 
the  revolution.  The  last  insurrection  was  put  down  by  Na- 
poleon in  1795.  In  July,  1796,  a  decree  was  issued  author- 
izing every  man  to  do  business  in  the  money  and  on  the  terms 
he  chose,  mandates  to  be  taken  at  their  market  value.  With 
Napoleon's  power,  coin  and  a  comparatively  stable  govern- 
ment returned  to  France.  Napoleon's  wars  kept  France  sup- 
plied with  specie  during  his  ascendency;  he  took  the  gold 
and  silver  from  all  the  countries  he  conquered. 

The  evils  of  the  rapid  depreciation  of  the  curency  in  the 
French  Revolution  were  doubtless  very  great;  industrial  cal- 
culations could  not  be  made  with  any  certainty  for  any  con- 
siderable period  in  the  future,  and  creditors  were  cheated  to 
an  enormous  extent.  Two  things,  however,  must  never  be 
forgotten.  First,  that  these  evils  are  not  inherent  in  incon- 
vertible paper,  as  the  French  experience  of  1870  has  shown, 
but  belong  to  the  bad  management  of  the  Revolutionary  Gov- 


28  PAPER  MONEY  VINDICATED  BY  HISTORY. 

ernment;  and  second,  that  in  spite  of  all  its  evils,  the  revo- 
lutionary paper  accomplished  wonders;  coin  was  invisible  for 
clanger  was  in  sight;  paper  was  necessary,  and  the  assignats, 
ill-managed  as  they  were,  nevertheless  enabled  France  to  con- 
quer the  enemies  of  liberty  on  every  hand;  nation  after  na- 
tion with  metallic  money  yielded  to  the  French  and  their  poor 
paper,  debtors  thruout  the  land  were  liberated,  unjustly 
to  a  large  extent  no  doubt,  but  nevertheless  liberated,  a  re- 
sult in  itself  a  benefit;  the  first  moderate  upward  trend  of 
prices  gave  an  enormous  impulse  to  industry;  the  national 
domains  were  purchased  almost  for  nothing  by  the  holders  of 
government  paper,  many  large  estates  were  divided  into  little 
holdings  and  became  daily  more  productive  from  the  number 
and  energy  of  the  new  cultivators;  the  diffusion  of  property 
that  resulted  was  of  inestimable  benefit.45  It  was  a  great  thing 
to  get  rid  of  some  of  the  old  burdens,  oppressions  and  aristoc- 
racies, and  tho  it  might  have  been  done  in  a  better  and  juster 
way,  we  must  give  the  rag  credit  for  wiping  the  slate,  even 
while  we  recognize  that  it  was  not  as  clean  a  rag  as  it  should 
have  been. 

THE  ALLIED  POWEES. 

During  the  Napoleonic  Wars  part  of  the  gold  and  silver 
of  Austria,  Prussia,  and  Russia  went  into  hiding  or  emigrated 
of  its  own  notion,  and  the  rest  was  carried  to  France  by  the 
conqueror,  and  "coin  became  improcurable  within  their  ter- 
ritories." An  inconvertible  paper  money  was  issued  by  the 
Powers,  and  guaranteed  jointly  by  Great  Britain  and  all  the 
other  allies,  and  this  "irredeemable"  paper  alone  rendered  pos- 
sible the  vast  military  operations  of  the  allies  which  resulted 
in  the  defeat  of  Napoleon.  Paper  money  overthrew  him,  al- 
tho  his  stolen  millions  of  metallic  money  constituted  one 
of  his  best  props.46 

RUSSIA. 

Paper  money  (to  the  amount  of  40,000,000  roubles  or  $32,- 
000,000)  was  first  issued  in  Russia  under  Catharine  II  in 


(45)  "History  of  Europe,"  by  Sir  Archibald  Alison,  Vol.  IV.,  p.  371. 

f*6)  Such  is  the  verdict  of  one  of  the  best  and  most  authoritative  Euro- 
pean writers  on  finance,  "The  New  Golden  Age,"  by  R.  JEL  Patterson,  Lon- 
don, 1882,  Vol.  11,  pp.  24-5. 


PAPER  MONEY  VINDICATED  BY  HISTORY.  29 

1768,  on  the  ground  that  the  copper  money,  then  forming 
the  legal  tender  was  inconvenient.47 

"The  manifesto  accompanying  the  issue  of  this  paper," 
says  Mr.  Tooke,48  "left  it  in  doubt  whether  the  payment  to 
bearer  was  to  be  in  copper  or  silver;  and  acording  to  Storeh, 
opinions  were  still  divided  when  he  wrote  in  1815.  The 
agio  in  favor  of  silver  varied  only  from  1  to  3  per  cent,  in 
that  interval,  from  1768  to  1787,  while  there  was  an  agio  of 
1.5  per  cent,  in  favor  of  paper  against  copper" 

"In  1787  60,000,000  roubles  were  added,  and  during  a 
series  of  wars  with  Sweden,  Turkey,  Poland,  Persia  and 
France  the  Russian  government,  instead  of  taxing  the 
wealthy,  issued  new  volumes  of  paper  till  the  amount  out- 
standing in  1810  was  computed  at  577,000,000  roubles,  or 
$461,600,000,  a  paper  advance  in  twenty-three  years  from 
$1.50  per  head  to  $11  per  head.  This  rapid  increase  of  vol- 
ume was  accompanied  by  a  considerable  depreciation.  The 
paper  rouble  (par  value  80  cents)  was  worth  in  silver:49 

72  cents  in  1787. 
48  cents  in  1796. 
36  cents  in  1800. 
24  cents  in  1810. 
18  cents  in  1817. 

AUSTRIA. 

For  twenty  years  Austria-Hungary  has  had  a  legal  tender 
paper  which  does  not  profess  to  be  based  on  gold  or  silver  or 
have  any  relation  therewith.  The  price  of  gold  has  fluctu- 
ated chiefly  from  political  causes,50  but  in  reference  to  commo- 
dities in  general,  this  baseless,  promiseless,  irredeemable  paper 
has  at  no  time  fallen  in  value;  on  the  contrary  it  has  appre- 
ciated, prices  have  fallen  somewhat,51  the  notes  not  being  is- 
sued fast  enough  to  keep  the  movement  of  the  currency  vol- 
ume even  with  the  growth  of  business. 


Jevons,  202,  Walker,  366. 

See  Tooke's  Hist.,  Prices,  ii.,  67,  209-16,  also  i.,  103-1 

Mulhall's  Diet,  of  Statistics,  title  "Money." 

(BO)  walker  on  "Money,"  p.  368. 

(M)  Mulhall,  tit.  "Prices,"  subhead  "Austria-" 
Tit.  "Money"  for  exchange  rates 


30  PAPEU  MONEY  VINDICATED  BY  HISTORY. 

I  said  the  paper  was  promiseless;  I  mean  that  the  issuing 
government  does  not  promise  to  pay  anything  for  the  paper; 
it  merely  promises  to  receive  the  paper  for  debts  due  it,  and 
makes  it  legal  tender  with  slight  exceptions  in  cases  where 
coin  payment  is  expressly  provided  for.  This  Austrian  cur- 
rency is  so  well  described  by  Consul-General  Post  that  I  quote 
a  few  paragraphs  from  his  report: 

"Prior  to  1866  the  currency  of  the  Empire  cconsisted  of  National 
bank  notes — promises  to  pay  silver  florins  which  were  the  standard. 
In  1866,  however,  the  government  (Austria  Hungary)  commenced 
to  issue  legal  tender  state  notes  which  do  not  pretend  to  be  prom- 
ises to  pay  anything-,  anywhere,  at  any  time.  They  read  on  their 
face,  after  stating-  the  denomination,  one,  five,  or  fifty  gulden  as 
the  case  may  be,  as  follows  :  'This  state  note  will  be  received 
and  paid  out  by  all  imperial  and  royal  depositories  and  offices  for 
all  payments  which  are  not  required  by  law  to  be  in  coin.'  ' 

"It  will  be  seen  that  these  notes  are  a  promise  to  receive,  not  'to 
pay,'  and  that  they  do  not  claim  to  be  redeemable,  and  have  no 
more  reference  to  silver  florins  than  to  gold  florins.  As  the  Na- 
tional Bank  was  compelled  to  accept  these  irredeemable  state  notes, 
the  Government  exempted  the  National  Bank  by  law  from  redeem- 
ing its  notes,  so  long  as  state  notes  are  issued,  so  that  legally  and 
practically  the  business  of  the  empire  is  conducted  with  a  paper 
currency  absolutely  irredeemable,  and  having  no  reference  to  either 
silver  or  gold,  its  value  being  derived  from  its  legal  tender  charac- 
ter. The  average  amount  of  National  Bank  notes  in  circulation  in 
1876  was  291,000,000',  and  of  state  notes  342,000,000  florins." 

"The  legal  tender  promises  to  receive  issued  by  the  state  not 
only  furnish  the  larger  part  of  the  circulation,  but  fix  the  character 
of  the  entire  currency.  That  currency  which  some  American  phil- 
osophers and  statesmen  are  reported  to  be  dreaming  of  and  longing  for, 
has  been  established  by  law,  and  is  in  actual  use  in  this  country — a 
paper  currency  with  a  value  stamped  thereon,  and  which  costs  nothing 
but  the  printing.  It  is  not  silver,  it  is  not  gold,  nor  is  it  a  promise  to 
pay  silver  or  gold,  nor  is  it  a  promise  to  receive  as  equivalent  to  silver 
or  gold.  It  is  a  paper  florin,  a  legal  tender  for  all  debts,  except  debts 
which  are  by  express  law  or  by  express  agreement  payable 
in  coin."52 

BRAZIL. 

Brazil  kept  an  independent  paper  currency  at  par  with 
gold  for  many  years,  and  even  sent  it  to  a  premium.  After 
the  Paraguayan  war  Dom  Pedro  refused  to  paralyze  the  coun- 
try's energies  by  contracting  the  circulating  medium.  In- 


(Ba)  Hon.  Philip  S.   Post,  TJ.   S.   Consul  General  to  Austria-Hungary,  Con- 
sular Reports,  July  13,  1878. 


PAPER  MONEY  VINDICATED  BY  HISTORY.  31 

stead  of  doing  that  he  decided  to  stimulate  them  by  vigorous 
expansion  (as  France  did  after  the  Franco-German  war),  and 
the  consequence  was  that  within  seven  years  after  the  war  the 
paper  money  which,  during  the  war,  had  depreciated  nearly 
one-half,  measured  in  gold,  rose  again  to  par,  and  even  com- 
manded a  premium  of  If  d.  in  gold.53 

The  appreciation  was  not  accomplished  by  diminishing  the 
volume  of  the  currency.  On  the  contrary  the  first  step  was 
an  expansion,  to  the  enormous  extent  of  50  per  cent,  in  one 
year,  which  was  followed  by  an  advance  of  llf  per  cent, 
toward  par.  It  took  the  United  States  fifteen  years  to  bring 
its  paper  to  par  with  gold  via  the  contraction  road,  while 
Brazil  reached  the  same  goal  in  less  than  half  that  time,  by 
way  of  the  expansion  turnpike.  Moreover,  our  people  suffered 
inexpressible  hardships  during  the  journey,  while  hers  were 
never  more  prosperous  and  happy.64 

The  llerschell  Commission  says: 

"The  case  of  Brazil  is,  perhaps,  the  most  remarkable  of  all,  as 
showing-  that  a  paper  currency,  without  a  metallic  base  may,  if 
the  credit  of  the  country  is  good,  be  maintained  at  a  high  and 
fairly  steady  exchange,  altho  it  is  absolutely  inconvertible,  and 
has  been  increased  by  act  of  government  out  of  all  proportion 
to  the  growth  of  population  and  its  foreign  trade.  The  Brazilian 
standard  coin  is  the  milreis,  the  par  value  of  which  is  27  d.  A 
certain  number  were  coined,  but  long  since  left  the  country,  and 
the  currency  is,  and  has,  since  1864,  been  inconvertible.  The  in- 
convertible paper  was  more  than  doubled  between  1865  and  1888, 
bnt  the  exchange  was  about  the  same  at  the  two  periods  and  very 
little  below  the  par  of  27  d.  It  has  gone  down  to  14  d., 
in  1868,  the  date  of  the  war  with  Paraguay,  but  has  risen  again, 
and  was  in  1875  as  high  as  28%  d.  In  1869,  when  the  quantity  of 
paper  was  increased  from  £12,648,000  to  £18,320,000,  the  mean 
sale  of  exchange  showed  an  advance  of  11%  per  cent." 

Since'  the  Commission  wrote,  the  currency  of  Brazil  has 
met  with  serious  depreciation  thru  enormous  overissues,  but 
so  long  as  the  conditions  of  steady  value — a  stable  govern- 
ment and  due  limitation  of  the  money  volume — were 
maintained,  the  inconvertible  paper  kept  its  value.* 

(B3)  Report  of  the  Herschell  Indian  Currency  Commission  composed  of 
some  of  the  ablest  statesmen  of  England,  every  member  signing  the  Report. 

(64)  «The  Key  Note"  by  Albert  Griffin,  pp.  98-9. 

*Paper  circulation  in  Brazil  rose  from  192,800,000  milreis  (196,300,000  gold) 
in  1889  to  785,941,000  milreis  (209,296,090  gold)  in  1898.  The- government 


32  PAPER  MONEY  VINDICATED  BY  HISTORY. 

THE  BANK  OP  VENICE. 

In  the  year  1171  a  Venetian  fleet  was  sent  to  avenge  an 
outrage  perpetrated  by  the  Grecian  Emperor  Manuel  upon 
Venetian  merchants  in  his  empire.  To  meet  the  charges  of 
this  war  against  the  Emperor  of  the  East  and  sustain  the  bur- 
den of  hostilities  with  the  Emperor  of  the  West,  in  which  the 
Republic  was  also  involved,  the  Duke  Vitale,  Michael  II., 
had  recourse  to  a  forced  loan  from  the  most  opulent  citizens 
of  Venice,  each  being  required  to  contribute  according  to  his 
ability.  By  determination  of  the  Great  Council,  a  Chamber 
of  Loans  was  established,  and  the  subscribers  were  guaranteed 
4  per  cent,  interest.  The  contributors  were  constituted  a 
special  board  for  their  own  protection  and  the  management 
of  the  loan;  the  book  in  which  the  loans  were  inscribed  was 
authenticated  by  the  Government,  and  made  evidence  of  the 
whole  amount  of  the  debt,  and  the  proportion  belonging  to 
each  subscriber.55 

It  was  an  easy  step  to  commence  the  transfer  of  the  loans 
upon  the  books  as  a  means  of  paying  debts  or  obtaining 
money,  and  the  advantages  of  the  book  credits  seem  to  have 
led  to  a  very  rapid  circulation  of  the  loan.56 


then  began  to  contract  the  paper  volume  so  that  in  August,  1899,  it  was 
reduced  to  735,759,000  milreis  (equal  to  219,736,530  milreis  in  gold  or 
£25,717,000).  In  1889  paper  was  at  a  premium  of  1.80  above  gold.  The  next 
year  thru  a  large  increase  of  volume,  it  began  to  depreciate,  and  by  1898 
the  depreciation  rose  to  73.40  and  74.50  (the  maximum)  in  March,  1899, 
three  months  after  the  withdrawals  of  paper  began.  In  August,  1899,  when 
the  withdrawals  had  been  going  on  for  eight  months,  the  depreciation  was 
reduced  to  70.10.  In  March,  '99,  the  volume  of  paper  in  circulation  was 
773,802,000  milreis,  worth  197,087,479  in  gold,  or  almost  exactly  the  sumo 
as  200,000,000  milreis  were  worth  in  1889.  (For  further  details,  see  L'Ecou- 
omiste  Europeen,  vol.  16,  p.  613,  Nov.,  1899;  vol.  17,  pp.  324,  389— by  Feb. 
1st,  1900,  the  volume  of  paper  had  been  further  reduced  to  725,719,854 
milreis.) 

(M)  McPherson's  Annals  of  Commerce  (London,  1805),  Vol.  I.,  p.  341.  Col- 
well's  "Ways  and  Means  of  Payment,"  pp.  288-9.  (Stephen  Colwell  was  a 
learned  and  wealthy  Philadelphian  who  collected  a  large  library  rich  in 
Italian  literature.  He  made  a  very  careful  study  of  the  Bank  of  Venice  and 
wrote  the  best  history  of  that  institution  that  has  been  put  into  English. 
It  was  published  by  J.  B.  Lippincott  &  Co.,  in  1859.  In  October,  1878,  the 
Bankers'  Magazine  of  New  York  commended  Mr.  Colwell's  work  in  high 
terms,  printed  his  chapter  on  the  Venetian  Bank,  saying  that  it  was  con- 
sidered the  best  account  in  the  English  Language.  The  American  Cyclo- 
pedia, Art.  "Bank,"  cites  Colwell  as  "an  eminent  economic  writer."  In 
fact  he  is  universally  regarded  as  an  able  and  trustworthy  writer,  which  is 
important  in  view  of  fact  that  his  writings  furnish  the  only  available  source 
of  complete  information  on  this  subject  for  those  unable  to  read  Italian. 

(Be)  Colwell,  p.  289. 


PAPER  MONEY  VINDICATED  BY  HISTORY.  33 

Thus  originated  the  Bank  of  Venice,  which  for  more  than 
six  centuries  (until  overthrown  by  Napoleon  in  1797)57  dom- 
inated the  finances  of  Europe. 

The  facility  of  transfer  coupled  with  the  superior  security 
of  funds  guaranteed  by  the  State,  and  the  regular  payment 
of  interest,  soon  opened  men's  eyes  to  the  advantages  of  the 
Venetian  Bank  over  common  banks,  and  the  demand  for  Bank 
credits  rapidly  grew.  In  an  ordinary  bank  the  depositor  might 
lose  his  money  by  robbery,  or  defalcation,  or  maladministra- 
tion of  the  officers;  but  funds  in  the  Bank  of  Venice  were 
secure  from  these  dangers.  Payment  in  coin  was  slow,  in- 
convenient and  unsafe.  There  was  a  great  admixture  of  coins 
in  Venice,  which  her  widely  spread  commerce  brought  from 
all  over  the  world.  These  coins  not  only  belonged  to  different 
systems  and  nationalities,  but  were  new  and  old,  counterfeit 
and  genuine,  light  weight  and  full  weight,  and  it  required 
special  skill  to  tell  the  value  of  the  coins.  Under  such  cir- 
cumstances the  ready  transfer  of  book  credits  by  which  thou- 
sands of  ducats  could  be  paid  in  a  moment  in  a  medium  se- 
cure from  counterfeiting  and  light  weight,  of  entirely  cer- 
tain value  and  perfect  divisibility,  became  a  matter  of  the 
highest  importance.  If  all  the  merchants  of  a  city  had  the 
same  banker  who  kept  an  account  with  each  one  of  them, 
this  banker  could  make  all  the  reciprocal  payments  without 
moving  a  cent  of  their  money. 

The  capital  of  the  bank  did  not  consist  of  gold  or  silver, 
but  simply  of  a  debt  due  by  the  Republic  to  its  citizens.  The 
government  took  the  money  and  gave  in  return  an  inscription 
on  the  books  of  the  bank.  The  Government  used  the  cash 
in  war  or  foreign  expenditures,  or  turned  it  again  into  the 
channels  of  domestic  commerce.  Depositors  in  this  bank 
could  not  withdraw  their  deposits.  "It  was  perfectly  under- 


(5T)  1171  to  1797  is  the  period  given  by  Colwell;  by  Pres.  E.  Benjamin 
Andrews,  in  his  Institutes  of  Economics,  p.  131;  by  Hon.  John  Davis,  Arena, 
December,  1893,  p.  35;  by  Wharton  Barker,  in  his  Bimetalism,  p.  10;  see 
also  Hazlitt's  History  of  Venice,  Sidney  Dean's  "History  of  Banking  and 
Banks  from  the  Bank  of  Venice  founded  A.  D.  1171,  etc";  Edw.  H.  G.  Clark 
in  the  North  American  Review,  September,  1885,  p.  205;  and  see  the  Cyclo- 
pedia Britannica,  the  American  Encyclopedia,  the  International  Cyclopedia, 
La  Grande  Encyclopedie,  art.  "Banque,"  p.  251,  etc.  Prof.  Dunbar,  in 
Quar.  J.  of  Econ.,  April,  1892,  says  the  bank  was  opened  in  1619  instead  of 
1171,  and  closed  by  Napoleon  in  1806;  but  the  overwhelming  weight  of 
authority  is  against  him. 


34  PAPER  MONEY  VINDICATED  BY  HISTORY. 

stood  that  no  coins  passed,  neither  any  right  to  any,  on  the 
transfer  in  the  bank."58  If  the  amount  of  bank  credits  ex- 
ceeded the  demand  for  them  in  business  transactions,  the  Gov- 
ernment paid  off  a  part  of  the  debt  so  as  to  remove  the  super- 
fluous funds.  When  the  bank  funds  were  in  large  demand, 
the  bank  was  open  to  receive  further  loans  to  the  govern- 
ment. This  policy  of  adjusting  the  volume  of  credits  so  that 
they  should  not  exceed  the  needs  of  business,  not  only  kept 
the  inconvertible  credit  currency  of  the  bank  at  par  with 
specie,  but,  in  connection  with  the  peculiar  advantages  of  the 
credits,  kept  them  for  the  most  part  far  above  the  level  of 
gold  and  silver.59 

The  Government  itself  made  payments  by  drawing  on  the 
bank,  and  received  bank  credits  into  the  public  treasury  on 
payment  of  sums  due  the  State.  A  law  was  passed  that  all 
bills  of  exchange  above  300  ducats  might  be  paid  in  money 
of  the  bank,  which  could  not  be  refused  unless  the  right  to 
refuse  had  been  stipulated  for.60  In  1423  it  was  decreed  that 
all  bills  of  exchange  payable  in  Venice  should  ~be  paid  in  the 
bank  unless  otherwise  stipulated.61 

It  was  further  enacted  that  all  payments  in  gross  for  mer- 
chandise and  all  payments  whatever  for  oil  and  quicksilver 
should  be  in  bank.  These  measures  brought  the  mass  of  pay- 
ments of  that  great  commercial  city  to  the  State  Bank,  created 
a  great  additional  demand  for  bank  funds,  and  brought  large 
sums  into  the  public  coffers. 

The  Government  no  longer  paid  interest,  but  the  bank  funds 
were  exempt  from  execution  for  debt  and  from  encumbrance 
by  mortgage,  and  were  not  merely  legal  tender,  but  the  re- 
quired medium  of  payment  for  bills  of  exchange  and  pur- 
chases at  wholesale.  ISTo  promise  was  made  to  repay  the  coin 
with  which  new  credits  were  bought.  The  Government  took 
the  coin  and  used  it  in  foreign  wars,  etc.,  and  the  depositor 


(5S)  Colwell,  p.  306. 

(B8)  Colwell,  pp.  6  and  7,  306,  309,  311.  Temporarily,  during  the  stress 
of  war  on  two  or  three  occasions,  the  government's  policy  of  adjusting  the 
bank  funds  to  the  needs  of  business  was  not  perfectly  carried  out.  (See 
below  note  8.) 

(6°)  Daru  Hist.  Venice,  Vol  3,  p.  73. 

(61)  Colwell,  p.  292. 


PAPER  MONEY  VINDICATED  BY  HISTORY.  35 

had  only  his  transferable  credit,62  which  was,  however,  worth 
more  to  him  than  the  coin,  else  he  would  not  have  bought  it. 
The  superior  advantages  of  bank  funds  and  the  limitation 
of  their  volume63  resulted  in  sending  them  to  a  premium  above 
coin,  which  rose  at  times  as  high  as  40  or  50  per  cent.  When 
it  had  risen  with  various  fluctuations  to  an  average  of  20  per 
cent.,  a  new  law  was  passed  fixing  the  agio  or  premium  at  that 
amount,  hoping  to  do  away  with  the  fluctuations  in  the  rela- 
tion between  coin  and  credit;  but  the  law  was  unsuccessful; 
the  real  agio  at  times  fell  below  20  per  cent,  by  reason  of  the 
sale  of  bank  credits  at  a  discount  of  10  or  15  per  cent.,  and 
at  other  times  rose  above  20  per  cent,  by  reason  of  demand 
for  bank  funds,  inducing  merchants  to  offer  a  sur-agio  of  20 
or  30  per  cent,  in  addition  to  the  20  per  cent,  allowed  by  law.64 


(61)  In  the  course  of  time  a  "Cash  Office"  was  opened  as  a  branch  of  the 
Ancient  Bank,  and  in  this  cash  office  coin  could  be  deposited  and  withdrawn 
at  pleasure;  but  money  deposited  In  the  main  bank  went  into  tne  public 
treasury  and  could  not  be  withdrawn.  Merchants  kept  in  the  cash  office 
money  they  might  find  convenient  to  use  directly  in  trade,  and  even  those 
who  had  bills  to  pay  in  a  short  time,  making  it  necessary  to  carry  their 
money  into  the  ancient  branch  of  the  bank,  might  wish  to  keep  the  coin 
in  their  power  until  the  payments  matured.  (Colwell,  p.  299.)  Experience 
showed  that  the  establishment  of  the  cash  office  did  not  cause  any  sensible 
diminution  in  the  business  of  the  main  bank.  (Savary,  Diet,  de  Com.,  art. 
"Banque,"  p.  276.) 

(63)  Colwell  says,  p.  311:  "The  public  debt  was  wisely  kept  at  that  amount 
which  not  only  preserved  its  value,  but  furnished  the  full  quantity  of  cur- 
rency required  for  trade,  with  the  means  of  increasing  or  diminishing  the 
amount  according  to  the  demand."  And  p.  309:  "The  money  brought  in  to 
pay  bills  was  taken  by  the  government  as  fast  as  it  was  received,  until  the 
amount  of  the  deposits,  or  debt  of  the  state,  was  adequate  by  rapid  circul- 
ation to  the  current  payments  of  commerce."  After  this  point  was  reached 
in  the  judgment  of  the  authorities,  merchants  desiring  bank  credits  would 
have  to  buy  them  of  other  merchants  in  possession  of  the  desired  credits. 
And,  if  the  government  needed  further  coin  for  foreign  purposes,  it  issued 
bonds  or  borrowed  from  the  cash  office.  At  times,  however,  either  through 
temporary  departure  from  this  policy  and  an  over  production  of  bank  credits, 
or  through  a  falling  off  of  commerce  reducing  the  demand  for  bank  funds, 
their  value  fell  somewhat  below  the  usual  20j<  premium  level;  at  other 
times  it  rose  above  that  level. 

(M)  Professor  Dunbar,  in  the  Quarterly  Journal  of  Economics,  April,  1892, 
sets  forth  the  opinion  that  the  agio  or  premium  of  20#  established  by  law  was 
not  due  to  any  superiority  of  the  bank  credits,  but  resulted  from  the  arbi- 
trary selection  of  an  imaginary  ducat  20#  more  valuable  than  the  real  ducat 
as  a  unit  of  account.  Upon  this  point  it  may  be  said:  (1)  That  such  a  com- 
plication of  commercial  transactions  would  seem  incredible  as  a  mere  arbi- 
trary regulation.  (2)  That  abundant  reasons  existed  for  the  preference  of 
bank  funds  to  coin,  reasons  quite  sufficient  to  produce  the  recorded  phe- 
nomena without  any  arbitrary  measure.  A  payment  by  transfetr  of  credit 
was  quick  and  safe  and  inexpensive,  sure  to  give  full  value  and  free  from 
the  trouble  of  counting  and  valuing  a  multitude  of  diverse  coins,  many  of 
them  mutilated  and  not  a  few  of  them  depreciated  coins  of  alien  origin. 
(Colwell,  p.  306,  see  also  to  the  point  that  the  agio  in  ancient  banks  arose 
from  these  natural  causes,  Jevons'  Money  and  Mechanism  of  Exchange,  p. 
200,  and  Adam  Smith's  Wealth  of  Nations,  Bk.  IV.,  Chap.  III.)  (3)  That 
Prof.  Dunbar's  theory  does  not  explain  the  sur-agio  of  20  or  30  per  cent.  (4) 
That  Prof.  Dunbar  does  not  adduce  a  single  fact  in  support  of  his  assertion, 
all  the  citations  made  by  him  agreeing  far  better  with  the  idea  that  the 
difference  between  the  bank  ducat  and  the  coin  ducat  was  the  result  of 
the  superior  utility  and  safety  of  the  former.  And  (5)  That  historians  clear! v 
state  that  the  agio  was  first  developed  by  the  merchants  and  afterwards 


36  PAPER  MONEY  VINDICATED  BY  HISTO&Y. 

fixed  by  law.  Colwell  says  (p.  305):  "The  bank's  funds  rose  to  30#  premium 
over  the  current  coins  and  continued  to  fluctuate  near  this  high  rate  until 
the  government  limited  the  premium  to  20#."  And  (p.  308):  "The  government 
so  far  from  producing  the  agio,  attempted  to  limit  it  to  20$,  an  attempt 
which  was  rendered  wholly  abortive  by  the  introduction  of  a  sur-agio."  The 
premium  was  not  caused  by  the  government  nor  by  the  bank,  but  by  the  acts 
of  the  merchants  themselves  competing  for  bank  credits  with  which  to  pay 
their  debts.  The  amount  of  bank  funds  was  limited  as  we  have  seen,  and 
this  circumstance  together  with  their  superiority  to  coin  in  large  commer- 
cial transactions,  sent  them  to  a  premium. 

In  the  same  article  Prof.  Dunbar  contends  that  the  Bank  of  Venice  paid 
coin  on  demand  except  during  suspensions  beginning  in  1691  and  1717,  and 
some  earlier  suspensions  of  uncertain  date.  This  contention  appears  to  arise 
from  a  confusion  of  the  main  bank  with  the  cash  office.  Colwell  clearly 
states  that  money  once  deposited  in  the  main  bank  could  not  be  withdrawn, 
and  that  the  cash  office  was  established  on  purpose  to  provide  for  those  who 
wished  to  deposit  their  money  subject  to  call.  (Ways  and  Means  of  Pay- 
ment, pp.  299  and  307;  see  also  Diet,  de  Com.  par  Savary,  art.  "Banque,"  p. 
276.) 

After  stating  the  inconvertibility  of  the  bank  credits  as  a  matter  of 
historic  record,  Colwell  adds  the  opinion  that,  "If  the  credits  had  been  con- 
vertible at  will  into  the  precious  metals,  the  agio  could  never  have  origin- 
ated" (p.  307).  On  Prof.  Dunbar's  theory  that  the  main  bank  was  a  bank 
where  money  could  be  deposited  and  drawn  out  at  will,  it  is  clear  that  no 
agio  could  have  arisen,  since  the  laws  requiring  payment  in  bank  would 
have  been  satisfied  by  payment  in  specie  as  well  as  by  payment  in  account, 
and  if  credits  had  been  advanced  in  price,  specie  would  have  become  at 
once  the  medium  of  payment  as  the  cheaper  medium;  the  debtor  owing  1,000 
ducats  and  having  an  account  worth  1,200  metal  ducats  would  have  gone 
with  the  creditor  to  the  bank,  taken  out  his  metal,  paid  his  debt  with 
1,000  coins  and  had  200  ducats  left. 

The  historic  fact  that  not  only  an  agio,  but  also  a  sur-agio  existed  in 
Venice,  proves  the  error  of  Professor  Dunbar's  hypothesis  as  to  convertib- 
ility. The  debtor  had  to  pay  in  the  main  bank;  the  only  way  to  do  this  was 
by  transfer  of  credit  on  the  books  of  that  bank;  it  could  not  be  done  with 
cash,  for  there  was  no  cash  in  that  bank  (except  cash  received  on  loan  to 
the  government  and  in  transitu  to  the  public  treasury— no  cash  demandable 
on  the  credits).  As  the  credits  were  limited  in  quantity  by  the  policy  of  the 
government,  the  competition  for  them  among  debtors  sent  them  to  a 
premium.  That  is  the  story  history  tells,  and  it  is  perfectly  clear  and  con- 
sistent and  apparently  the  only  story  that  will  fit  the  facts.  The  debtor 
could  not  demand  cash  for  his  credits;  the  government  had  taken  the  cash 
originally  given  for  the  credit,  and  neither  government  nor  bank  promised 
to  redeem  the  credit  with  cash;  the  credit  was  simply  a  debt  due  from  the 
government  which  reserved  the  right  to  cancel  the  debt  with  cash  if  it 
chose,  but  did  not  engage  to  do  so  within  any  specified  time;  if  the  debtor 
had  a  deposit  in  the  cash  office  and  a  bill  of  exchange  coming  due,  he  could 
not  draw  out  his  cash  and  pay  the  bill  with  that;  the  only  way  to  liquidate 
the  bill  was  by  a  transfer  of  credit  on  the  books  of  the  main  bank.  If  the 
depositor  in  the  main  bank  could  have  withdrawn  his  deposit,  the  primary 
purpose  of  the  government  in  starting  the  bank,  and  one  of  its  chief  objects 
in  maintaining  the  institution,  would  have  been  defeated;  for  the  government 
could  not  have  used  the  deposits  in  foreign  wars  without  depressing  business 
at  home,  and  incurring  the  danger  of  bankruptcy.  In  the  stress  of  war  and 
disaster,  at  the  very  time  the  government  had  most  need  of  the  money,  there 
would  have  been  a  run  on  the  bank  compelling  disbursement  or  closing  of  the 
bank.  This  is  what  did  occur  to  the  cash  office,  but  not  to  the  main  bank, 
showing  once  more  that  its  credits  were  not  convertible. 

In  the  Quarterly  Journal  of  Economics,  January  '93,  p.  210,  Professor 
Dunbar  admits  that  he  made  several  mistakes  in  the  previous  article  above 
referred  to.  He  acknowledges  that  his  assertion  that  the  history  of  the  bank 
since  1619  had  not  been  written  was  an  error;  and  that  the  long  suspensions 
of  the  cash  office  were  from  1630  to  1666  (36  years)  and  from  1713  to  1739 
(26  years),  instead  of  beginning  in  1691  and  1717  as  he  had  formally  stated. 

In  view  of  these  things  it  is  not  difficult  to  imagine  that  the  Professor 
may  have  confused  the  main  bank  and  the  branch,  and  applied  the  state- 
ments to  the  former  which  related  only  to  the  latter.  But  the  most  import- 
ant consideration  is  that  even  if  we  accept  all  that  Professor  Dunbar  says 
about  the  Venetian  Bank,  our  main  conclusions  in  respect  to  it  are  not  in  the 
least  affected.  The  Professor  says  that  cash  payments  were  suspended  for 
62  years  and  more,  and  during  these  years,  at  any  rate,  the  bank  credits 
were  admittedly  inconvertible,  whatever  view  he  may  take  of  their  character 
at  other  times.  Yet  he  admits  that  the  bank  credits  remained  good  during 
the  suspensions,  with  temporary  exceptions,  when  the  exigencies  of  war 
caused  the  government  to  depart  from  its  policy  of  keeping  the  bank  credits 
within  moderate  limits,  or  the  influence  of  hostilities  seriously  diminished 
the  volume  of  business  in  Venice. 

The  Professor  explains  the  continued  value  of  the  bank  credits  in  spite 
of  suspensions  covering  whole  generations  by  saying:  "It  is  plain  that  a  cur- 


PAPER  MONEY  VINDICATED  BY  HISTORY.  37 

Here  we  have  a  currency  consisting  simply  of  bank  credits 
having  the  power  by  authority  of  law  and  usage  to  pay  debts.65 
Men  were  willing  to  take  bank  credits  in  payment  of  debts 
due  to  them  because  they  knew  they  could  use  those  credits 
to  pay  debts  due  from  them.  They  were  more  willing,  in 
case  of  large  payments,  to  take  the  credits  than  coin,  because 
of  their  superior  safety  and  convenience.  And  when  the  law 
increased  the  advantages  of  credits  over  coin  by  requiring  the 
payment  in  bank  of  all  bills  of  exchange  and  wholesale  pur- 
chases, merchants  were  ready  to  give  a  considerable  premium 
for  these  bank  credits  which  were  most  convenient  in  large 
transactions  at  home,  and  were  almost  essential  to  extensive 
commerce  abroad.  In  consequence  of  their  superior  advant- 
ages as  a  medium  of  exchange,  these  "irredeemable"  bank 
funds,  these  "fiat"  book  credits  without  an  ounce  of  gold  or 
silver  behind  them,  went  to  a  premium  above  gold  and  silver 
in  all  the  great  markets  of  the  world,  and  with  slight  excep- 
tions for  more  than  400  years  the  precious  metals  were  at  a 
discount  as  compared  with  the  funds  of  the  Venetian  Bank.66 

Venice  had  not  only  the  main  bank  with  its  "irredeemable" 
credits  in  which  large  payments  had  to  be  made,  and  the  cash 
office  for  special  purposes,  but  there  were  also  interest  bear- 
ing Government  bonds,  and  these  bonds  with  all  their  in- 


rency  which,  for  important  purposes,  is  a  legal  tender,  would  not  lose  its 
ease  of  circulation  by  becoming  inconvertible,  and  might  even  be  kept  at  par 
with  specie,  if  its  supply  were  strictly  limited  to  the  demand  for  the  special 
purposes  referred  to,  as,  for  example,  in  this  case,  the  settlements  for 
exchange.  In  short,  the  good  credit  sometimes  enjoyed  by  the  bank  after 
suspending  payment,  which  excited  the  wonder  of  foreign  observers,  is  the 
same  phenomenon  which  has  been  observed  in  other  cases  where  inconvert- 
ibility has  not  been  made  the  excuse  for  over  issue."  Citing  the  notes  of 
the  Bank  of  England  during  the  first  ten  years  after  the  suspension  of  1797, 
the  notes  of  the  suspended  banks  of  New  York  and  New  England  after  the 
suspension  of  1857,  and  the  inconvertible  notes  of  the  Bank  of  France  from 
1870  to  1878. 

The  chief  differences  between  Prof.  Dunbar  and  other  writers  on  the 
Rank  of  Venice  lie  in  the  matter  of  dates,  the  cause  of  the  agio,  and  the 
relation  of  the  cash  office  to  the  main  bank.  On  the  vital  point  of  the  value 
and  circulating  power  of  the  inconvertible  legal  tender  bank  credits  he  is  at 
one  with  all  the  rest. 

C55)  Paper  money  has  well  been  defined  as  "a  portable  system  of  book- 
keeping." 

(6e)  Colwell,  pp.  306-310.  He  further  says  that  the  demand  for  funds 
that  would  pay  bills  of  exchange  was  greater  than  for  gold  or  silver  for 
export  or  retail  trade  or  any  other  xise.  The  great  mass  of  purchases  were 
made  in  the  first  instance  by  bills  of  exchange,  and  the  chief  operation  of 
payment  consisted  in  liquidating  those  bills.  "To  comprehend  the  extra- 
ordinary fact  of  a  credit  on  the  books  of  the  bank  with  no  money  in  its 
vaults,  and  not  bound  to  make  that  credit  good  in  later  times  even  by  the 
payment  of  interest,  or  to  redeem  it  in  any  way,  having  been  for  hundreds  of 
years  at  a  high  premium  over  gold  and  silver,  we  need  only  remember  that 
these  credits  were  the  funds  in  which  debts  were  chiefly  paid."  ((Pp.  306 
and  307.) 


38  PAPER  MONEY  VINDICATED  BY 

terest  (profit)  and  their  promise  of  coin  redemption,  were 
quoted  at  60  per  cent,  of  their  face  value,  while  the  bank 
credits,  with  no  interest  and  no  promise  of  coin  redemption, 
were  at  a  premium  above  gold.  The  quality  of  paying  debts 
was  worth  more  than  the  interest  and  future  redemption  in 
coin  put  together.67 

For  six  hundred  years  Venice  had  no  money  panic.  In 
this  country  as  many  as  ten  disastrous  panics  have  occurred 
ivithin  a  single  life — a  rate  that  would  have  given  Venice 
over  a  hundred  panics  during  the  life  of  her  credit  hank. 

The  people  of  Venice  appear  to  have  been  entirely  satisfied 
with  their  bank.  Colwell  says,  p.  294:  "Not  an  objection  to 
the  bank  is  extant;  neither  book,  nor  speech,  nor  pamphlet 
have  we  found  in  which  any  merchant  or  dweller  in  Venice 
ever  put  forth  any  condemnation  of  its  theory  or  practice/' 
On  the  contrary,  the  Venetians  had  every  reason  to  be  proud 
of  their  banking  system.  The  law  that  required  all  bills  of 
exchange  and  wholesale  purchases  to  be  settled  in  the  bank 
might  seem  unjust  as  intended  to  give  a  forced  currency  to 
the  bank  credits ;  but  it  was  found  to  work  so  well  in  practice 
that  it  brought  an  immense  accession  of  business  to  the  city 
and  the  bank.  In  fact  the  bank  became  a  great  clearing 
house,  or  place  of  adjustment  for  merchants  of  many  coun- 
tries. Merchants  everywhere  found  it  convenient  to  have 
funds  in  Venice.  It  was  for  centuries  the  greatest  entrepot 
of  commerce  in  Europe.  And  the  credit  bank  was,  as  Colwell 
says  (p.  289):  "For  many  ages,  the  admiration  of  Europe, 
the  chief  instrument  of  Venetian  finance,  and  the  chief 
facility  of  a  commerce  not  surpassed  by  that  of  any  European 
nation." 

The  Bank  of  Venice  lasted  longer  than  any  other  money 
system  known  to  history,  and  it  clearly  proved  that  an 
"irredeemable"  legal  tender,  receivable  in  the  revenues  and 


(67)  Hon.  John  Davis,  in  "Money  in  Politics,"  Arena  for  August,  '94,  p. 
328:  Similar  facts  occur  elsewhere  in  history.  During  the  Napoleonic  Wars 
the  non-interest  bearing  irredeemable  legal  tender  British  paper  was  worth 
twice  as  much  as  the  3#  gold  bearing  bonds  of  England.  (Ibid.,  citing 
Alison's  History  of  Europe.)  The  same  thing  was  seen  during  the  Rebellion, 
when  our  specie  bonds  were  frequently  20#  or  more  below  par  in  coin,  while 
that  part  of  our  irredeemable  paper  which  was  receivable  in  the  government 
revenues  remained  substantially  at  par  with  gold. 


PAPE3  MONEY  VINDICATED  BY  HISTOKY.  39 

enforced  in  the  payment  of  debts,  may  have  far  greater 
convenience,  safety  and  stability  than  coin  or  any  money 
redeemabe  in  com.68 

In  his  summary,  Colwell  says  (pp.  7,  8):  "The  history  of 
these  celebrated  banks  (of  Venice  and  Genoa)  furnishes  les- 
sons which  would  richly  repay  the  most  careful  attention.77 

"They  demonstrated  the  efficacy  of  circulating  deposits  as 
a  means  of  payment,  and  that  the  deposits  were  just  as  ef- 
fective when  they  consisted  of  a  debt  due  from  the  govern- 
ment, as  if  they  were  gold  or  silver;  and  they  showed  that 
it  was  possible  to  keep  the  amount  of  this  public  debt,  as  held 
by  the  depositors  on  the  books,  within  a  range  of  amount, 
which  not  only  prevented  depreciation,  but  kept  the  deposits 
always  from  fiften  to  thirty  per  cent,  above  gold  and  silver." 

NUMERARY    MONEYS    OF    ANTIQUITY. 

Ancient  nations  understood  that  receivability  and  limita- 
tion of  volume  were  the  essential  attributes  of  money;  that 
intrinsic  value  was  not  necessary;  and  that  money  could  and 
ought  to  be  regulated. 

The  Middle  Ages  went  back  to  barter  and  commodity 
money.  Modern  nations  have  not  yet  outgrown  the  com- 
modity money,  and  "intrinsic77  theories  of  barbarous  times, 
but  are  beginning  to  understand  something  of  the  philosophy 
of  the  symbolic  money  which  characterized  the  civilizations 
of  antiquity,  and  will  probably  characterize  the  civilizations 
of  the  future.  Some  "account  of  ancient  thought  and  usage 
may  be  helpful  here. 

Aristotle  says  in  his  Politica:  "Money  (nomisma)  by  itself 
is  but  a  mere  device  which  has  value  only  by  law  (nomos)  and 
not  by  nature.77  And  in  his  Ethica:  "By  virtue  of  volun- 


C58)  The  fullest,  clearest  and  most  authoritative  account  of  the  Venetian 
Bank  in  the  English  language  is  that  contained  in  Colwell's  "Ways  and 
Means  of  Payment,"  Philadelphia,  1859.  Next  to  this  may  be  mentioned  the 
series  of  articles  by  Hon.  John  Davis,  M.  C.,  in  the  Arena  for  December,  '93. 
April,  '94,  and  August,  '94.  Considering  its  condensation,  the  statement  of 
Edw.  H.  G.  Clark,  in  the  North  American  Review,  September,  1885,  is 
admirable.  In  addition  to  these  and  other  accounts  already  named,  the 
curious  reader  may  consult  Postlethwaite's  Dictionary,  London,  1755;  Hayes' 
Negotiators'  Magazine,  London,  1739;  Traite  Generale  du  Commerce,  par  S. 
Ricord,  1732;  Marperger  on  Banks,  pp.  180  to  189,  Leipsic,  1717;  Econ. 
Politique,  par  Henri  Storch,  Vol.  IV.,  p.  95;  Broggia  Trattale  delle  Monete, 
Vol.  II.,  p.  270;  in  Vol.  V.  of  Custodi's  collection  of  the  Economist!  Italian}, 
II  Banco  Giro  di  Venezia,  by  Prof.  Amadeo  Soresina,  Venice,  1889, 


4:0  PAPEK  MONEY  VINDICATED  BY  HISTOKY. 

tary  convention,  money  has  become  the  medium  of  exchange. 
We  call  it  'nomisma'  because  its  efficiency  is  due,  not  to  na- 
ture, but  to  law  (nomos),  and  because  it  is  in  our  power  to 
regulate  it." 

Alexander  Del  Mar,  one  of  the  greatest  of  modern  writers 
on  monetary  subjects,  gives  a  fine  account  of  the  numerary69 
moneys  of  ancient  times.  In  his  "Science  of  Money/'  p.  31, 
he  says  in  substance:  Among  highly  civilized  nations  of 
antiquity,  before  paper  was  invented,  symbols  for  such  money 
consisted  of  porcelain  tablets,  as  in  China;  thin  iron  discs, 
as  in  Sparta;  artistic  copper  discs,  as  in  Borne;  discs  of  secret 
composition,  as  in  Carthage;  or  tablets  of  stamped  clay  or 
leather,  as  in  several  other  States.  Where  these  moneys  per- 
manently retained  their  original  value  it  was  by  means  of 
limiting  the  number  of  symbols  employed,  by  protecting  them 
from  counterfeiting  (which  is  another  point  in  the  limitation 
of  their  volume),  and  by  abolishing  all  other  kinds  of  monies. 
The  bits  of  material  which  represented  the  numbers,  whether 
porcelain,  sheet-iron  or  leather,  counted  for  nothing.  The 
devices  or  legends  upon  them  promised  nothing.  Their  value 
was  derived  from  the  legal-tender  quality  and  their  numbers; 
from  the  legal  obligation  to  receive  them  for  debts,  fines, 
taxes,  commodities  and  services  of  all  sorts,  and  from  the  legal 
interdiction  of  all  other  kinds  of  money.  Such  numerical 
monies  followed  pre-existing  commodity  monies. 

The  facts  collated  by  Del  Mar  exhibit  with  tremendous 
emphasis  the  power  and  importance  of  limitation  of  the  mon- 
etary volume.  The  statements  of  Del  Mar  are  so  well  repre- 
sented by  the  selected  quotations  in  President  Will's  financial 
lectures  that  I  will  use  his  abstracts  of  Del  Mar's  "History  of 
Money  in  Ancient  Countries,"  instead  of  attempting  the  hope- 
less task  of  improving  upon  his  selections. 

The  numerary  monies  we  are  discussing  were,  as  a  rule,  ab- 
solutely destitute  of  "intrinsic"  value,  possessing  practically 
no  commodity  value;  almost  absolutely  worthless  for  any 
other  purpose  than  money;  and  yet,  when  the  proper  condi- 


(68)   A  numerary  money  is  one  in  which   the  number  and  value  of  the 
pieces  is  specifically  limited  by  law. 


PAPER  MONEY  VINDICATED  BY  HISTORY.  41 

lions  of  receivability  and  limitation  of  volume  were  observed, 
they  did  the  work  of  money,  and  did  it  admirably  well.  The 
value  of  these  monies  was  determined,  not  by  their  intrinsic 
quality,  not  by  the  labor  cost  or  any  other  cost  of  producing 
them,  but  by  the  limitation  of  the  number  of  pieces  and  by 
the  legally  established  and  enforced  condition  that  this  money 
should  be  good  for  all  public  and  private  debts  and  dues.  Here 
are  the  abstracts: 

1.  China.     The  Chinese  more  than  once  caught  sight  of  the  true 
principles  of  money,  and  at  times  put  them  into  operation.     The 
theory  of  money  is  very  correctly  outlined  in  a  memorial  to  one 
of  the  emperors  of  the  present  century.     (Chinese  Repository  ii, 
279.)     It  was  known,  however,  in  China  ages  before.     At  present 
it  is  forgotten. 

The  cash  of  the  empire  was  always  issued  as  numerary  moneys. 
Several  circumstances  at  times  affected  its  character,  (a)  The 
vicissitudes  of  the  government,  leading  it  to  break  down  the  limits 
set  to  emissions,  (b)  Inefficiency  in  guarding  counterfeits,  (c) 
Emission  of  private  bank  notes.  These  circumstances  lowered  the 
value  of  copper  cash  to  its  commodity  value  (p.  41). 

2.  Egypt.    The  gold  mines  in  "Egypt  failed  for  twenty  centuries, 
i.  e.,  until  525  B.  C.     Egypt  must  have  been  without  gold    *    *    * 
yet  it  could  not  have  been  without  money;   otherwise  it  could  not 
have  maintained  its  civilization;    paste-board,  parchment,  leather, 
papyrus,  nummulites  and  scarabei  may  have  been  used  as  money. 
*    *    *    This  money  must  have  been  numerary;  otherwise  it  could 
not  have  passed,  since  its  commodity  value  was  so  slight. 

Over-valued  iron  money  was  used  in  Ivordofan,  the  pieces  varying 
in  weight  from  121  to  428  grains  each,  yet  all  were  of  similar  value; 
this  fact  proves  that  monetary  value  is  determined  by  numbers  and 
not  by  weight. 

Glass  numerary  money  was  used  under  the  reign  of  the  Fatimite 
Caliphs,  A.  D.  909-1171.  It  was  used  continuously  or  at  intervals 
for  upward  of  six  hundred  years..  It  could  not  have  passed  at  its 
"intrinsic  value."  *  *  *  The  author  believes  these  numerary 
moneys  were  all  badly  over-issued  and  so  fell  to  their  commodity 
value  or  thereabout  (p.  150). 

3.  Persia.     1294  Kai  Khatu,  noti  ng  the  lack  of  precious  metals 
and  the  mischief  occasioned  thereby,  tried  to  substitute  over-valued 
copper  coins  for  gold  and  silver  coins.     The  scheme  utterly  failed, 
(a)  No  specific  limit  was  set  to  the  emission,     (b)  The  coins  were 
easily  counterfeited,     (c)   The  concurrent  circulation  of  gold  and 
silver  coins  was  permitted,      (d)    The  government  was  weak  and 
despotic.     The  people  were  enslaved  and  ignorant;    no  confidence 
was  felt  in  the  value  of  the  new  coins,  which  were  refused  almost 
as  soon  as  issued.     The  prince's  o  wn  nephew  set  the  example  of 


42  PAPER  MONEY  VINDICATED  BY  HISTORY. 

refusing-  these  coins,  which  after  this  rapidly  fell  into  disrepute 
(p.  152). 

4.  Greece.    The  supplies  of  coining  metals  were  always  irregular. 
Gold  and  copper  had  to  be  imported,  while  the  silver  minea  were 
controlled  by  Athens;  hence  the  other  Greek  states  were  compelled 
to  employ  numerical  moneys.     This  was  resorted  to  so  commonly 
and  at  so  many  different  times  as  to  familiarize  the  Greek  mind 
generally  with  the  idea  that  money  was   an  institution  of  law; 
and  hence  the  name  of  law,  prescription,  limit,  numbers  or  nomos 
was  the  generic  name  always  conferred   upon  it    (p.   162).      (See 
Aristotle's  Definitions  of  Money  in  Gide's  Political  Econ.,  p.  216, 
and  Senator  Jones'  silver  speech  in  United  States  Senate  Oct.  18 
and  following  dates,  1893,  p.  29). 

5.  Sparta.     The  famous  iron  money  of  Sparta,  upon  which  Plu- 
tarch has  poured  such  ridicule,   is  believed  by   Del  Mar  to   be  a 
purely  numerary  money  adopted  by  Lycurgus   either  because  of 
"scarcity  of  metals,   or  of  the  desire  to  emancipate  the  country 
from  the  trammels  of  a  metallic  basis  of  valuation."    The  intrinsic 
(i.  e.,  commodity)  value  of  this  iron  was  destroyed  in  advance  by 
dipping  the  coins  while  redhot  into  vinegar.     Inflation  of  the  cur- 
rency was  discouraged  by  absolutely  prohibiting  the  production 
and  importation  of  gold  and  silver.     There  is  every  reason  to  be- 
lieve that  Sparta  used  this  system  of  numerary  iron  money  for 
three  and  one-half  centuries;  that  is,  until  she  lost  the  hegemony 
to  Athens.  B.  C.  479.    After  this  her  fall  was  rapid  (pp.  164,  165; 
also  Boeckh,  Pol.  Econ.  of  Athenians,  p.  763). 

6.  Clazomenae*    A  numerary  money  of  iron  discs  was  used.     The 
number  is  not  stated.    To  each  was  given  an  arbitrary  value  prob- 
ably equal  to  that  of  the  same  weight  of  gold.     Iron  having  been 
put  into  circulation,  and  naving  supplied  the  place  of  silver  (gold?), 
the  amount  of  ready  money  in  the  state  was  not  diminished.    Iron 
money  performed  the  same  service  in  the  state  which  silver  (gold?) 
had  previously  done,  and  the  silver  which  remained  could  be  em- 
ployed for  purposes  of  foreign   commerce.     To   that   extent   iron 
money  was  identical  in  its  uses  with  the  paper  money  of  modern 
times. 

Clazomenae,  however,  was  not  able  to  maintain  the  system  (pp. 
165,  166;  also  Boeckh,  p.  763,  and  Aristotle,  Economics,  II.,  pp.  2, 
16). 

7.  Byzantium,  a  colony,  rose  rapidly  to  affluence  and  power.  Dur- 
ing the  period  B.  C.  431-404  the  favorable  condition  of  its  civilization 
and  credit  enabled  it  to  employ  numerical  money.  Discs  of  sheet-iron, 
having  an  impression  on  one  side,  were  employed.    Such  a  disc  was 
known  as  a  "sidareous."    As  the  resources  and  credit  of  the  govern- 
ment declined,  its  money  was  supplemented  by  corporative  issues. 
A  bank  was  chartered  and  given  a  monopoly;  it  issued  highly  over- 
valued gold  and  silver  coins.     The  bank  afterward  ran  down,  and 
its  issues  depreciated  to  their  commodity  value  (pp.  166,  167). 


PAPER  MONEY  VINDICATED  BY  HISTORY.  43 

8.  Athens.     About  B.  C.  405  a  numerary  money  of  copper  discs, 
highly  over-valued,  was  adopted  (p.  168).    After  the  Peloponnesian 
war  the  rehabilitated  republic  issued  a  numerary  money  of  copper 
discs,   highly   over-valued;    this   was   receivable   for   all   payments, 
public  dues  included,  and  was  nominally  redeemable  at  an  inde- 
finite time  in  silver;  a  promise  of  whose  performance  we  have  no 
record.     (Boeckh,  pp.  399,  766.)     With  the  Social  War,  Athens  and 
her  numerary  system  fell  together  (pp.  171,  172). 

9.  Syracuse.    About  B.  C.  387  Dyonisius  issued  over-valued  coins 
of  tin  and  of  silver.     He  attempted  to  force  their  circulation,  but- 
failed.     The  coins  fell  to  their  commodity  value.      (Perhaps   the 
people  feared  the  tyrant  would  not  receive  the  coins  at  face  in 
payment  of  taxes.) 

10.  Carthage.     Issued  a  numerary  money  of  some  unknown  sub- 
stance, probably  tin,  wrapped  in  leather  or  parchment.    This  prob- 
ably went  out  of  use  within  the  half  century  after  the  gold  and 
silver  mines  of  Spain  were  opened,  about  B.  C.  408.    *    *    *     The 
introduction  of  gold  and  silver  into  Carthage,  and  its  "fatal  effects," 
are  noticed  by  Heeren,  IV.,  144.     (Del  Mar,  pp.  174-176.) 

11.  Eome.  The  monetary  history  of  Rome  is  of  profound  in- 
terest. Various  systems  were  tried.  Del  Mar  proves  exhaustively 
that  the  early  "Roman  system  was  a  numerary  one,  and  that  the 
numismatic  relics  that  have  so  long  been  regarded  by  the  learned 
world  as  copper  coins  were  essentially  irredeemable  notes  stamped, 
for  lack  of  paper,  on  copper  and  devised  and  designed  to  pass  in 
the  exchanges  for  a  much  greater  value  than  that  of  the  metal 
of  which  they  were  composed."  He  shows  "that  from  year  of 
Gaulish  invasion,  B.  C.  385,  until  about  the  year  B.  C.  269,  the 
monetary  system  of  Rome  consisted  of  copper  nummi,  formerly 
known  as  Ases;  that  the  whole  number  of  these  nummi  was  limited 
by  the  senate;  that  they  were  a  full  legal  tender;  and  that  they 
were  rendered  secure  from  counterfeiting  by  the  artistic  beauty  and 
mechanical  excellence  of  the  pieces,  and  the  vigilance  of  the  law 
officers:"  That  between  B.  C.  269  and  B.  C.  250  the  patrician  class, 
by  permission  of  the  senate,  introduced  the  over-valued  silver  den- 
arius. That,  B.  C.  207  the  numerical  system  gave  way  before  the 
free  coinage  of  silver,  and  its  adoption  as  full  legal  tender  com- 
modity money;  and  that,  B.  C.  46,  Julius  Caesar  introduced  the 
gold  standard,  doubtless  that  he  might  thereby  create  a  home 
market  for  the  gold  he  had  secured  in  Spain  and  Gaul  (p.  186, 
et.  seq.). 

Exploiting,  by  slave  labor,  the  gold  mines  of  Spain  and  Gaul, 
then  seizing  the  sovereign  power  at  Rome,  and  forcing  upon  the 
people  the  single  gold  standard,  he  cleared  away  an  enormous  per- 
sonal debt  (25,000,000  sesterces  or  $1,250,000)  and  grew  enormously 
rich  in  a  few  years. 

"We  shall  see  that  the  effect  of  Caesar's  policy  on  the  pros- 
perity of  Rome  was  not  so  good  as  upon  his  own. 


44          PAPER  MONEY  VINDICATED  BY  HISTORY. 
THE  FALL  OF  ROME. 

One  of  the  main  causes  of  the  downfall  of  the  Roman 
Empire  was  the  appreciation  of  the  precious  metals  used  as 
money. 

During  her  days  of  conquest,  "Rome  seized  the  accumu- 
lated treasures  of  Carthage,  Spain,  Gaul,  Greece,  Persia,  Asia 
Minor  and  Egypt,  throwing  into  circulation  as  money,  among 
her  people,  what  had  been  hoarded  as  royal  treasure,  or  de- 
voted in  vast  masses  to  sacerdotal  uses,  thus  raising  the  prices 
of  all  commodities  thruout  the  Empire,  but  especially  in 
Italy  and  the  countries  nearest  the  capital/770  Prices  rose  al- 
most 400  per  cent,  between  the  Punic  Wars  and  the  time  of 
Augustus,71  and  industry  flourished;  but  soon  after  Rome  be- 
came an  Empire  a  contrary  movement  began.  The  influx  of 
precious  metals  ended  when  conquest  ceased.  The  product 
of  the  mines  was  not  sufficient  to  maintain  the  volume  of 
money.  A  chief  source  of  labor  supply  for  the  mines.,  viz., 
the  slaves  captured  in  war,  was  no  longer  available.  The  men 
to  whom  the  mines  were  "farmed'7  out  took  only  the  richest 
ores  and  rapidly  exhausted  the  deposits.  They  also  terribly 
maltreated  the  criminals  and  slaves  whose  labor  worked  the 
mines.  The  value  of  money  increased  and  prices  began  to 
fall.  Gold  and  silver  were  hoarded.  Coin  was  exported  for 
luxuries.  The  wealthy  had  ornaments  and  trinkets  made  of 
gold.  The  fall  of  prices  ruined  the  debtor  classes,  depressed 
industry  and  threw  the  wealth  of  the  world  into  few  hands. 
Paper  money  was  unknown,  and  even  if  it  had  been  under- 
stood might  not  have  been  used,  for  the  Goverment  was  in 
the  control  of  the  moneyed  classes  who  profited  by  the  ap- 
preciation of  gold.  At  last  the  "barbarians  appeared  on  the 
borders  of  the  Empire,  offering  a  refuge  to  those  who  had 
the  courage,  born  of  despair,  to  attempt  an  escape  from  the 
power  of  Rome,77  and  many  convicts  and  slaves  deserted  the 
mines.  Then  the  barbarians  came  into  the  Empire  and  the 
first  lands  invaded  were  those  on  the  produce  of  whose  mines 
the  world  was  most  dependent  for  its  supply  of  gold  and  silver, 


(70)  Genl.  Walker's  "Money,"  pp.  124-5. 

(71)  E-  B.  Andrews'  "An  Honest  Dollar,"  p.  16. 


PAPER  MONEY  VINDICATED  BY  HISTORY.  45 

and  the  "production  of  the  precious  metals  received  a  shock 
from  which  it  was  not  to  recover  for  more  than  a  thousand 
years."72  From  480  to  680  A.  D.  there  does  not  appear  to 
have  been  any  mining  at  all,73  and  it  was  not  until  the  dis- 
covery of  America  that  the  mining  of  precious  ores  revived. 

Jacob,  who  is  the  leading  authority  on  the  subject,  esti- 
mates that  in  the  year  14  A.  D.,  in  the  time  of  Augustus,  the 
stock  of  money  in  the  Empire  was  £358,000,000.  By  the 
year  482  it  had  sunk  to  £87,000,000,  and  the  product  of  the 
mines  had  ceased  entirely.  By  the  year  806,  in  the  time  of 
Charlemagne,  he  estimates  that  the  stock  of  gold  and  silver 
in  Europe  was  only  about  £33,674,000,  or  less  than  one-tenth 
of  what  it  was  in  the  reign  of  Augustus,  and  it  remained 
nearly  the  same  until  the  beginning  of  the  Sixteenth  century, 
when  American  metal  began  to  make  its  appearance  in  Eu- 
rope. 

President  Andrews,  of  Brown  University,  says  that  "Be- 
tween Trajan  (A.  D.  98)  and  Charles  the  Great  (A.  D.  768- 
814)  prices  had  fallen  in  nearly  the  ratio  of  5  to  1,  and  the 
purchasing  power  of  money  had  increased  400  per  cent.  The 
main  cause  of  this  tremendous  change  was  the  decrease  in 
the  volume  of  money  metal  used  in  trade.74 

As  if  the  cessation  of  the  supplies  obtained  by  conquest 
and  the  falling  off  of  the  product  of  the  mines  were  not 
enough,  the  value  of  money  was  still  further  increased  arbi- 
trarily by  an  edict  (221  A.  D.)  depriving  silver  of  its  money 
quality  and  making  gold  the  only  legal  tender  money. 

The  burdens  of  the  producing  classes  increased  with  the 
scarcity  of  money  and  the  fall  of  prices.  Their  debts  and 
taxes  remained  the  same  while  their  labor  and  property  di- 
minished in  value.  Their  property  being  at  last  exhausted 
without  paying  their  debts,  they  became  the  slaves  of  the 
creditor  class.  All  incentive  to  energy  was  destroyed,  agri- 
culture decayed,  industry  was  paralyzed,  the  classes  that  once 
formed  the  strength  of  Borne,  from  which  the  invincible  le- 
gions were  drawn  in  former  times,  were  now  reduced  to  miser- 


(7a)  Walker,  "Money,"  p.  128. 

(7S)  Jacob,  "Inquiry  into  the  History  of  the  Precipus  Metals,"  p.  131. 

(T4)  An  Honest  Dollar,  p.  1§. 


46  PAPER  MONEY  VINDICATED  BY  HISTORY. 

able  dependents  ready  to  welcome  any  change  as  a  relief, 
while  the  ruling  classes  were  enervated  by  idleness  and  luxury 
born  of  -unearned  wealth.75  "I  for  one,"  says  President  An- 
drews, "am  convinced  that  the  slow  contraction  of  money 
was  among  the  most  potent  causes  of  the  dissolution  of 
Borne.76 

Sir  Archibald  Alison  says:  "The  two  greatest  events  which 
have  occurred  in  the  history  of  mankind  have  been  directly 
brought  about  by  contraction  and  expansion  of  the  circulating 
medium.  The  fall  of  the  Roman  Empire  so  long  ascribed  in 
ignorance  to  slavery,  heathenism  and  moral  corruption  was 
in  reality  brought  about  by  a  decline  in  the  silver  and  gold 
mines  of  Spain  and  Greece."77 

The  failure  of  the  money  supply  to  keep  pace  with  business 
caused  an  appreciation  of  money  which  meant  progressive 
ruin  for  all  but  the  very  wealthy  and  powerful,  so  that  at  last 
it  is  said,  a  group  of  1800  men  owned  practically  the  whole 
known  world,  and  the  rest  of  mankind  were  dependents, 
obliged  to  get  permission  even  to  till  the  soil  or  labor  to  earn 
the  means  wherewith  they  might  continue  to  live.  The  dis- 
turbance of  just  distribution  of  wealth  and  power  resulting 
from  the  appreciation  of  money  was  a  fundamental  cause  of 
the  industrial,  political  and  moral  debasement  which  destroyed 
the  strength  of  Rome  and  made  her  fall  a  prey  to  barbarian 
invaders.78 

THE  DARK  AGES. 

Eor  centuries  after  the  fall  of  the  Roman  Empire  the 
money  volume  in  Europe  continued  to  shrink.  This,  how- 
ever, while  a  very  natural  accompaniment,  was  not  the  cause 


(7B)  Wharton  Barker,  "Bimetallism,"  pp.  8-11. 

(76)  "An  Honest  Dollar,"  p.  16. 

(7T)  Hist.  Europe,  1815-1852,  Sec.  33.  The  other  "greatest  event"  was  the 
revival  of  energy  and  enlightenment  following  the  discovery  of  America  and 
the  increase  of  money  volume  thereby  produced — of  that  hereafter. 

(78)  See  further  on  this  absorbing  topic,  Andrews'  "An  Honest  Dollar;" 
Barker's  "Bimetallism;"  Walker's  "Money;"  Alison's  "Hist,  of  Europe;" 
Jacob's  "History  of  Precious  Metals." 

For  further  discussison  of  the  relation  of  appreciating  money  to  the 
fall  of  Rome,  see  Del  Mar's  "Hist.  Precious  Metals,"  p.  19,  Senator  Jones' 
speech  in  Senate,  October,  1893,  p.  117  et  seq.,  and  p.  43  of  "Facts  About 
Silver,"  issued  by  the  American  Bimetallic  League.  The  dark  ages  in  the 
Levant,  with  the  decay  of  Tyre  and  Sidon,  resulted  in  part  at  least  from 
appreciating  money.  Pres.  Wills'  Lectures  on  Finance,  and  Del  Mar's  Hist. 
Precious  Metals,  pp.  9,  10.  The  dark  ages  in  Japan  appear  to  have  been  due 
to  the  same  cause.  Del  Mar's  'Hist,  of  Money  in  Ancient  Countries,"  p.  53. 


PAPER  MONEY  VINDICATED  BY  HISTORY.  4-  < 

of  the  darkness  in  this  case.  The  appreciation  of  money  in 
Rome  was  a  main  cause  of  its  fall  whereby  the  darkness  of 
the  North  enfolded  the  whole  of  Europe,  but  the  subsequent 
shrinkage  of  money  was  not  the  cause  of  continued  darkness. 
Indeed  the  destruction  of  property  and  the  reversion  to  prim- 
itive conditions  so  far  diminished  production  that  prices  rose 
considerably  in  the  Fifth  and  following  centuries.  For  a  long 
period  the  lack  of  social  organization  and  the  insecurity  of 
possession  would  probably  have  neutralized  the  stimulus  of 
even  a  very  rapid  increase  of  gold  and  silver. 

In  the  Ninth  and  Tenth  centuries  mining  began  again,  so- 
cial organization  and  security  improved  and  commerce  grew. 
Credit  money  came  into  use.  The  Bank  of  Venice  (1171) 
and  the  Bank  of  Genoa  (1407)  satisfied  the  needs  of  com- 
merce in  their  localities.  But  taking  Europe  as  a  whole,  tho 
the  volume  of  money  increased  somewhat  from  the  Ninth  to 
the  Sixteenth  centuries,  population  and  business  increased 
so  much  faster  in  the  later  centuries  of  the  period  that  by 
1510  the  value  of  money  was  almost,  if  not  quite  as  great  as 
in  the  last  period  of  the  Empire. 

THE  DISCOVERY  OF  AMERICA. 

In  1492  Columbus  made  his  grand  voyage,  and  in  the  fol- 
lowing century  the  treasures  of  the  new  world  flowed  into 
Europe.  Its  money  supply  was  increased  about  500  per  cent., 
and  prices  rose  nearly  as  much,  or  from  a  price  level  of  100 
to  470,  according  to  the  highest  authority.79  "We  have  already 
referred  to  the  passage  in  which  Sir  Archibald  Alison  deals 
with  the  failure  of  Roman  civilization  and  the  awakening 
that  followed  the  discovery  of  America  as  the  two  greatest 
events  in  history — the  failure  caused  by  a  contraction,  the 
awakening  by  an  expansion  of  the  money  volume.  He  con- 
tinues: "Columbus  led  the  way  in  the  career  of  renovation. 
When  he  spread  his  sails  across  the  Atlantic  he  bore  mankind 
and  its  fortunes  in  his  bark.  The  annual  supply  of  the  pre- 


(79)  Jacob,  Hist  Precious  Metals.  Other  estimates  by  Prof.  Leslie, 
Hume,  Alison,  etc.,  place  the  rise  at  200  to  300  per  cent.  See  American 
Economic  Assoc.  "Economic  Studies,"  Vol.  I.,  No.  1,  p.  30,  and  Genl 
Walker's  "Money,"  pp.  81,  135. 


4:  8  PAPER  MONEY  VINDICATED  BY  HISTOKY, 

cious  metals  for  the  use  of  the  globe  was  tripled;  before  a 
century  had  expired  the  prices  of  every  species  of  produce 
were  quadrupled.  The  weight  of  debt  and  taxes  insensibly 
wore  off  under  the  influence  of  that  prodigious  increase;  in  the 
renovation  of  industry  the  relations  of  society  were  changed; 
feudalism  was  cast  off;  the  rights  of  man  established.  Among 
the  many  concurring  causes  which  conspired  to  bring  about 
this  mighty  consummation,  the  most  important,  tho  hitherto 
the  least  observed,  was  the  discovery  of  Mexico*  and  Peru."'80 
The  rise  of  prices  stimulated  industry  and  commerce,  reduced 
the  pressure  of  debts  and  all  fixed  charges,  rents,  pensions, 
mortgages,  etc.,  swept  away  the  resources  of  the  idle  rich, 
made  it  increasingly  difficult  to  live  without  labor,-  enlarged 
the  profits  of  merchants  and  manufacturers,  and  enabled  the 
producing  classes  to  throwoff  the  yoke  of  the  creditor  classes.81 
Widespread  distress  resulted  to  certain  classes.  "The  creditor 
class  was  very  generally  impoverished,  if  not  hopelessly 
ruined.  Debts  were,  in  many  cases,  almost  confiscated  by  the 
rapid  depreciation  of  the  money  in  which  they  were  to  be 
paid."82  Pauperism  visited  the  homes  of  many  who  had  lived 
without  labor,  and  misery  was  the  portion  of  dependents.  The 
benefits,  however,  that  came  to  current  labor  far  outweighed 
the  evils  to  those  who  lived  on  the  fruits  of  past  labor.  The 
lightening  of  debts,  rents,  taxes,  and  all  the  obligations  of 
the  past,  the  diffusion  of  wealth,  the  levelling  of  classes,  the 
discouragement  of  idleness  and  parasitism,  and  the  stimulation 
of  industry  thru  the  increased  rewards  to  the  active  and 
skillful  members  of  society  more  than  balanced  the  evils  of 
depreciating  gold,  and  united  with  intellectual  and  moral 
causes  to  make  the  Sixteenth  and  Seventeenth  centuries  lu- 
minous with  progress  and  grand  with  the  mighty  energies  of 
a  new  born  hope.  Even  in  its  most  glorious  epoch,  however, 
metallic  money  bought  its  benefits  with  devastation  and  dis- 
tress, and  sought  for  progress  at  the  cost  of  grievous  injustice. 
It  is  not  a  wise  money  system  that  pauperizes  one  class  to  bene- 

(80)  Hist,  of  Europe,  1815-1852,  Sec.  33. 

(81)  Genl.  Walker's  "Money,"  pp.  85-89  and  135-6. 
David  Hume's  "Essay  on  Money," 

Alison's  "Hist,  of  Europe." 

(82)  Walker's  "Money,"  p.  136. 


PAPER  MONEY  VINDICATED  BY  HISTORY.  49 

fit  another,  and  ruins  multitudes  of  honest,  law-abiding  citi- 
zens thru  the  sudden  confiscation  of  resources  on  which  it 
had  previously  led  them  to  rely. 

A  METAL  BASE  IS  A  BUILDER  OF  DEBT  AND  AN  ALLY  OF 
GAMBLERS. 

The  recent  issue  of  262  millions  of  bonds  in  time  of  peace 
illustrates  one  of  the  serious  evils  of  our  metallic  system.    The 
necessity  the  Government  is  under  of  redeeming  greenbacks 
in  gold  upon  demand  enables  scheming  men  to  draw  large 
amounts  of  gold  from  the  Treasury  and  then  to  say  to  the 
Government,  "Your  reserve  is  getting  low;  you  must  have 
gold  or  you  will  be  in  danger  of  failure  to  keep  your  promise 
in  respect  to  specie  payments;  issue  bonds  and  get  the  gold 
back  again."     So  the  schemers  get  bonds  for  their  gold,  sell 
the  bonds  at  a  premium,  take  the  greenbacks  they  get  for  the 
bonds  and  draw  the  gold  out  of  the  Treasury  again,  till  the 
Government  is  frightened  into  a  new  issue  of  bonds,  and  so 
on  in  an  endless  chain,  with  a  premium  profit  for  Wall  Street 
on  every  issue  of  bonds  and  nothing  but  accumulating  debt 
for  the  nation.    It  is  not  wise  or  just  for  the  nation  to  go  into 
debt,  in  time  of  peace,  especially  when  it  can  easily  raise  all 
the  money  it  needs  by  taxation.     It  is  wrong  to  burden  the 
people  with  needless  interest  payments  for  20  or  30  years  on 
loans  not  required  for  public  expenditure,  but  negotiated  f or 
the  benefit  of  the  bondholding  classes  who  desire  the  bonds, 
as  the  safest  modern  means  of  compelling  labor  to  pay  tribute. 
The  Government  might  start  with  thirty  millions  of  gold  in 
the  Treasury,  and  thru  the  repetition  of  the  above  described 
process,  issue  a  billion  of  bonds,  and  at  the  end  have  only 
thirty  millions  of  gold  in  the  Treasury  and  not  a  thing  to 
show  for  the  billion  of  debt  but  some  money  which  it  could 
and  should  have  obtained  by  taxation  without  saddling  the 
nation  with  the  burden  of  an  interest  bearing  debt,  and  the 
keeping  of  a  promise  (gold  redemption)  that  is  of  little  ad- 
vantage to  any  one  except  the  schemers  who  have  found  out 
how  to  gear  it  to  a  bond-printing  press  and  make  it  turn  the 
people's  millions  into  their  coffers  as  fast  as  they  dare  to  turn 
on  the  current. 


50  PAPER  MONEV  VINDICATED  BY  HISTORY. 

It  is  a  heavy  count  in  the  indictment  against  our  metallic 
system  that  it  places  our  industries,  our  debts  and  even  our 
Government  at  the  mercy  of  unscrupulous  gamblers,  who  are 
able  to  heap  hundreds  of  millions  of  useless  debt  upon  the 
nation,  govern  to  a  large  extent  the  general  movement  of 
prices,  exert  great  influence  over  the  business  interests  of  the 
country,  capture  millions  of  unearned  profit,  and  bring  the 
Government  to  its  knees  before  them,  offering  tribute  for 
their  protection — all  by  controlling  the  floating  supply  of 
gold. 

The  bond  record  stands  as  follows: 

December,  1891,  fifty  millions  of  bonds  issued  to  get  gold 
for  the  Treasury,  and  in  two  months  the  gold  thus  obtained 
was  gone  from  the  Treasury  again. 

March,  1894,  fifty  millions  of  bonds,  and  in  three  months 
the  gold  was  gone. 

February,  1895,  sixty-two  and  a  half  millions  of  bonds,  and 
by  1896  the  gold  had  vanished  again. 

January,  1896,  a  new  issue  of  bonds  brought  in  $116,- 
000,000  of  gold,  nearly  the  whole  of  which  departed  within 
six  months. 

July,  1896,  a  new  issue  seemed  necessary,  but  Bryan  was 
nominated;  the  rising  of  the  people  was  too  serious  to  be 
trifled  with;  it  would  not  do  to  goad  the  people  further  at  the 
very  gates  of  a  National  election,  and  the  bankers  decided 
that  the  bond  business  must  rest  till  after  election,  to  accom- 
plish which  they  supplied  the  Treasury  with  twenty-odd  mil- 
lions of  gold. 

In  respect  to  where  the  gold  went  so  fast  after  its  capture 
by  the  Treasury  we  have  some  evidence  in  one  of  President 
Cleveland's  messages. 

"The  results  of  previous  bond  issues,"  he  says,  "have  been 
exceedingly  unsatisfactory,  and  the  large  withdrawal  of  gold 
succeeding  their  sale  in  open  market  gave  rise  to  the  reason- 
able suspicion  that  a  large  part  of  the  gold  paid  into  the  Treas- 
ury in  such  sales  was  promptly  drawn  out  again  by  the  pre- 
sentation of  notes,  Treasury  notes,  and  found  its  way  into  the 
hands  of  those  who  had  only  temporarily  parted  with  it  in 
the  purchase  of  bonds." 


PAPER  MONEY  VINDICATED  BY  HISTORY.  51 

On  the  $62,500,000  loan  the  Morgan-Belmont  syndicate 
offered  but  104-|,  altho  United  States  bonds  were  selling  in 
Wall  Street  at  the  time  for  120.  The  Government  was  un- 
willing to  accept  the  bid,  but  according  to  Mr.  Morgan  he  was 
able  to  persuade  the  Government  by  going  on  to  Washington 
in  person  and  assuring  the  authorities  that  they  could  not  get 
gold  except  thru  him  and  his  associates,  and  there  would  be 
a  panic  if  his  figures  were  refused. 

So  Morgan,  Belmont,  Kothschild  &  Co. 

Got  the  bonds  for $65,112,943. 

And  sold  them  to  jobbers  for 69,928,587. 

Who  sold  them  to  the  public  for 73,531,700. 

Profits  of  speculation  on  this  one  deal 8,418,757. 

More  than  eight  millions  of  dollars  in  the  pockets  of  gold 
gamblers  that  should  have  gone  into  the  Treasury  of  the 
United  States. 

The  remarks  of  William  J.  Bryan  on  this  subject  in  one 
of  his  campaign  speeches  last  year  are  so  fine  that  I  quote 
them  at  some  length: 

"The  first  $50,000,000  of  bonds  were  advertised  for,  and 
the  advertisement  stated  that  only  gold  would  be  received 
for  the  bonds.  Suppose  a  man  had  gone  to  the  Secretary  of 
the  Treasury  with  $1,000,000  in  greenbacks  and  Treasury 
notes  and  said  to  the  Secretary:  'I  want  to  buy  $1,000,000 
of  bonds.7  The  Secretary  would  have  said:  'We  can't  sell 
you  these  bonds  for  greenbacks  and  Treasury  notes.  These 
bonds  are  issued  to  get  gold  and,  therefore,  we  can  only  sell 
them  for  gold.7  This  man  would  say  :  '"Well,  if  you  won't 
sell  them  for  greenbacks  and  Treasury  notes,  I  will  just  de- 
posit the  greenbacks  and  Treasury  notes  and  have  you  redeem 
them  in  gold.7  The  Secretary  would  have  said:  'Well,  that's 
what  we  are  here  for,  and  would  have  given  him  the  $1,000,- 
000  in  gold.  Then  the  man  would  say:  'Do  I  understand 
that  you  have  some  bonds  for  sale?7  'Yes.7  'Well,  here  is 
your  $1,000,000  in  gold,  give  me  the  bonds!7  7 

"Don7t  you  think  that  can  be  done?  It  can  be  done.  Do 
you  think  it  would  be  done?  It  has  been  done.  When  they 


52  PAPER  MONEY  VINDICATED  BY  HISTORY. 

issued  the  first  $50,000,000  of  bonds  they  drew  out  $18,- 
000,000  in  gold  to  pay  for  those  bonds,  and  to  the  extent  of 
$18,000,000  the  Government  had  no  more  than  when  it  com- 
menced, altho  it  had  agreed  to  pay  interest  on  $18,000,000 
of  bonds." 

"Then  they  issued  $50,000,000  more  and  drew  out  a  larger 
percentage  of  the  gold  than  the  first  time.  Then  they  made 
.the  Rothschild  contract.  There  was  a  contract  by  which  the 
Government  sold  to  a  private  syndicate  bonds  at  104rJ  which 
were  at  that  time  worth  120  in  the  market." 

"That  contract  contained  a  stipulation  by  which  the 
Rothschild  and  Morgan  syndicate  agreed  for  a  certain  length 
of  time  to  do  their  best  to  protect  the  Treasury  of  the  United 
States.  They  hired  two  men  to  back  the  Treasury.  If  this 
Government  is  going  to  admit  that  it  depends  for  its  financial 
existence  upon  two  banking  firms,  one  foreign  and  one  do- 
mestic, then  it  puts  itself  where  those  people  can  charge  this 
Government  whatever  they  please." 

"Yet  they  issued  $100,000,000  more.  It  was  suggested  that 
they  were  going  to  be  issued  at  private  sale,  and  J.  Pierpont 
Morgan,  who  had  been  in  the  bond  deal  where  they  made  such 
a  profit  on  the  bonds  that  he  refused  to  tell  about  it,  when 
brought  before  a  committee  of  investigation,  after  stating 
that  he  did  it  largely  because  of  his  interest  in  the  country, 
refused  to  tell  how  profitable  it  was  to  be  interested  in  the 
country  just  at  that  time,  J.  Pierpont  Morgan  organized  an- 
other syndicate,  and  it  was  advertised  that  he  was  going  to 
submit  a  bid  for  various  parties  at  about  105,  and  when  a 
circumstance  arose  that  made  it  necessary  for  the  President 
to  advertise  for  public  bids,  did  the  Morgan  syndicate  put  in 
a  public  bid  for  the  same  amount  it  would  have  at  private 
sale?  No,  that  syndicate  waited  until  just  before  the  time 
to  open  the  bids,  and  then  their  bid  was  put  in  more  than 
$5,000,000  above  the  bid  that  they  expected  to  put  in  if  they 
had  secured  the  bonds  at  private  sale." 

"Now  that  is  business  sagacity.  Of  course,  no  financier 
would  condemn  a  man  who  tried  to  get  the  bonds  at  105  and 
then  had  to  bid  110  and  a  fraction  and  got  them.  If  that  is 


PAPEB  MONEY  VINDICATED  BY  HISTORY.  53 

business  sagacity,  then  I  believe  it  is  the  business  of  this  Gov- 
ernment to  protect  the  people  against  such  sagacious  finan- 
ciering instead  of  turning  the  finances  over  to  them." 

"You  may  call  it  patriotism  on  their  part  if  you  will,  but 
I  want  that  kind  of  a  patriot  to  serve  some  other  country  and 
not  mine.  If  some  petty  individual  who  did  not  have  a  high 
financial  standing  were  to  try  to  beat  the  Government  out 
of  $100  they  would  put  him  in  the  penitentiary  and  make  an 
example  out  of  him.  But  if  a  man  tries  to  beat  the  Govern- 
ment out  of  $5,000,000  lie  becomes  a  patriot,  and  deserves  to 
be  the  chief  guest  where  Treasury  officials  are  banqueted.  I 
do  not  believe  the  man  who  manages  the  financiering  should 
be  the  bosom  friend  of  the  conspirators  who  never  lose  an  op- 
portunity to  bleed  the  people." 

But  when  the  metallic  system  puts  it  in  the  power  of  a  few 
speculators  to  wreck  the  credit  of  the  Government,  by  exer- 
cising their  lawful  right  to  purchase  and  hold  out  all  the  gold 
they  can  obtain,  is  it  strange  that  Government  officials  anxious 
to  sustain  the  public  credit  and  filled  from  boyhood  with  the 
belief  that  the  maintenance  of  metallic  redemption  is  essen- 
tial to  honest  finance — is  it  strange  that  such  officials  under 
such  circumstances  seek  to  placate  the  scheming  owners  of 
gold  and  bargain  for  their  help?  It  is  simply  the  reductio  ad 
absurdum  of  metallic  redemption. 

Writing  in  1895,  Major  Winn,  a  powerful  and  careful 
thinker,  used  the  following  significant  language:  "The  most 
striking  display  of  monetary  power  is  shown  by  the  action  of 
the  foreign  syndicate  in  stopping  the  gold  drain  of  a  million 
or  more  a  week  from  the  Treasury.  It  seems,  with  the  gain 
in  gold  and  some  expansion  by  the  banks,  to  have  restored 
confidence  and  revived  business,  and  to  show  that,  under  a 
gold  system,  a  few  men  hold  National  prosperity  on  tap  to 
be  sold  to  the  hiyhcst  bidder.  In  this  view  the  six  or  eight 
millions  profit  paid  by  Mr.  Cleveland  seems  reasonable.  Ter- 
ror is  reported  at  Washington  and  a  stock  decline  in  Wall 
Street  from  fear  that  these  bankers  will  not  protect  the  United 
States  till  October.  A  great  nation  grovels  at  the  feet  of  a 
foreign  syndicate." 
5 


|                    AVERAGE     PRICE    OF   CONSOLS     I&45-60.. 

JULY  AUG.SEPT. 

OCT.  NOV.  DEC- 

p£n 

iA 

3E 

DJg 

95 

Q4- 

X 

£ 

So—  <x^ 

\ 

Q 

94. 

93 

^N 

vV 

\ 

\/' 

• 

V 

A 

\ 

93 

GAZETTE  AVERAGE  PRICE    OF  WHEAT,    1846-61. 


Sh5  :  JAN    FEB.    MAR.    APR.  MAY  JUffe.  JULY  AUG  SEPT.     OCT.  NOV.  DEC     ;  *&.  jjtt 


55 


5Z 


55 


I-A-EIt  MONEY  VINDICATED  BY  HISTORY.  55 

per  cent,  in  one  year  from  Janunary  1,  1893,  to  January  1. 
1894,  and  nearly  19  per  cent,  in  two  years  from  January, 
1893,  to  January,  1895.8f) 

The  farmers  sell  mostly  when  money  is  dear  and  products 
cheap,  and  buy  mostly  when  money  is  cheap  and  products 
dear.  The  movement  of  the  crops,  the  settlement  of  the 
year's  business,  the  preparation  for  the  Christmas  holidays, 
etc.,  make  special  demands  upon  the  circulating  medium.  In- 
stead of  expanding  to  meet  the  need,  money  becomes  more 
difficult  to  get  in  proportion  as  it  is  needed,  and  the  strin- 
gency ruins  many  honest  merchants  and  debtors  of  various 
sorts  each  autumn,  while  riches  come  by  the  stroke  of  a  pen 
to  the  men  who  devote  themselves  to  studying  the  movements 
of  money  instead  of  wasting  their  energies  in  producing  and 
distributing  goods  and  merchandise,  and  who  are  not  too 
scrupulous  to  use  their  knowledge  to  capture  for  themselves 
the  wealth  of  the  producers. 

The  larger  variations  of  value  are  disastrous  in  the  extreme, 
especially  the  appreciation  of  money.  Rising  prices  may 
cause  a  serious  injustice  to  creditors  of  every  class,  from  bond- 
holders and  mortgagees  to  savings  bank  depositors.  Labor 
too  may  suffer  if  goods  advance  in  price  more  rapidly  than 
wages  and  salaries,  which  is  almost  sure  to  be  the  case.  The 
stimulation  of  industry  creates  a  new  demand  for  labor;  the 
unemployed  find  work,  employment  is  less  interrupted;  and 
wages  rise,  but  not  till  after  the  rise  of  goods  which  gave  new 
energy  to  production  and  caused  the  new  demand  for  labor, 
so  that  injustice  in  the  shape  of  diminished  reward  for  a  given 
amount  of  labor  of  hand  or  brain  is  sure  to  result. 


(8B)  See  the  tables  published  quarterly  by  "The  American."  The  fall  of 
prices  from  1873  to  July  1,  1897,  using  the  figures  of  Sauerbeck  and  the 
American,  was  49.9  or  practically  50#;  in  other  words  gold  doubled  in  value. 
Using  the  Aldrich  tables  and  the  American,  the  fall  would  be  about  44<*  and 
the  rise  of  gold  between  80  and  90  per  cent.  The  Sauerbeck  data  are  con- 
sidered by  economists  to  be  the  more  reliable. 

Even  the  quarterly  price  levels  vary  in  a  marked  degree.  The  following 
figures  are  taken  from  Sauerbeck  in  the  Journal  of  the  Royal  Statistical 
Society,  Vol.  59,  p.  189  (1896). 

1894,  1st  quarter  price  level,....  65  1895,  2nd  quarter  price  level,...  62.2 

1894,  2nd  quarter  price  level,...  63.3  1895,  3rd  quarter  price  level,...  63.2 

1894,  3rd  quarter  price  level,...  62.8  1895,  4th  quarter  price  level,.,.   62.3 

1894,  4th  quarter  price  level,...  60.9  1895,  1st  quarter  price  level 60.3 


56  tAPEB  MONEY  VINDICATED  BY  &ISTORY. 


Some  writers  affirm  that  rising  prices  lead  to  panic,  while 
others  believe  a  rising  market  to  be  a  blessing  so  great  as  to 
more  than  offset  the  injustice  to  creditors  and  the  scaling  down 
of  the  wage  rate.  Each  of  these  views  contains  a  truth,  but 
neither  is  unqualifiedly  true.  It  is  clear  that  rising  prices  do 
not  necessarily  lead  to  panic  —  they  may  lead  to  remarkable 
prosperity  as  during  the  long  age  of  rising  prices  that  followed 
tke  discovery  of  America,  and  in  England  during  the  Na- 
poleonic wars,  and  in  America  during  the  Civil  War.  There 
are,  however,  two  ways  in  which,  under  the  present  system, 
rising  prices  may  lead  to  industrial  disaster:  (1)  The  de- 
creasing proportion  of  product  that  goes  to  the  wage  receiving 
class  under  rising  prices,  and  the  increasing  share  of  the  en- 
trepreneur is  apt  to  augment  the  production  of  common  goods 
and  necessaries  of  life  beyond  the  power  of  the  community 
to  buy  and  consume  them.  The  rich  can  buy  but  need  only 
a  very  limited  quantity,  the  poor  need  much  but  can  buy 
little,  and  their  power  of  purchase  is  dimmshing  relatively 
to  the  volume  of  goods  produced;  so  that  there  is  apt  to  arise 
what  is  called  "over-production,"  which  would  generally  be 
more  accurately  described  as  under-consumption,  or  false  dis- 
tribution of  the  power  of  purchase;  tho  it  is  possible,  of 
course,  that  a  particular  class  of  goods  may  be  produced  be- 
yond the  amount  the  community  could  consume  even  if  every 
member  of  it  had  a  full  share  of  purchasing  power.  On  the 
other  hand,  if  the  increasing  profits  of  the  entrepreneur  are 
used  for  the  production  and  consumption  of  luxuries,  or  goods 
and  services  wanted  by  the  rich  and  well  to  do,  the  new  dis- 
tribution of  labor  may  keep  the  system  in  balance  and  pre- 
vent the  glutting  of  the  market.  (2)  A  rise  of  prices,  espe- 
cially if  rapid,  may  lead  to  careless  expansion  of  credit  and 
speculation  of  a  rash  and  dangerous  sort  on  the  part  of  over- 
confident and  reckless  investors,  and  under  our  present 
system,  the  collapse  of  these  undertakings  may  involve  the 
entire  community.  Industry  would  be  safest  if  protected 
from  any  rapid  rise  of  prices  as  well  as  from  falling  prices., 
But  the  continuous  and  emphatic  inflation  is  unwise,  throw- 
ing investors  and  business  men  off  their  guard  and  leading 


PAPER  MONEY  VINDICATED  BY  HISTORY.  57 

to  collapse  and  failure  of  many  imprudent  individuals,  yet 
it  by  no  means  follows  that  even  a  rapidly  ascending  market 
need  produce  a  panic,  if  the  financial  system  were  sufficiently 
elastic  to  check  an  extreme  rise  arid  soften  the  reaction — re- 
duce the  grade  of  the  upward  slope  and  bring  it  to  a  level 
by  a.  gradual  gen  tie  change,  instead  of  leaving  industry  to  climb 
the  steep  to  the  top  and  tumble  over  a  precipice  of  falling  prices. 
Individual  failures  there  would  be  under  any  system,  but  they 
would  not  become  the  widespread  failure  and  depression  that 
constitute  a  panic,  except  for  the  effect  of  falling  prices,  which 
are  by  no  means  a  necessary  consequence  of  a  period  of  rising 
prices,  but  result  from  the  failure  of  the  legal  tender  money 
volume  to  expand  so  as  to  offset  the  temporary  shrinkage  of 
credit. 

The  fall  of  prices  acompanying  panics  is  shown  in  the  fol- 
lowing table.  The  figures  are  taken  from  the  data  of  Sauer- 
beck, Wharton  Barker  and  the  Aldrich  Committtee  for  six 
of  our  first  class  crises: 

PRICE  LEVELS  JUST  BEFORE 

THE  PANIC  OF  SUBSEQUENT  PRICE  LEVELS. 

1825       117  1827       97 

1837       102   1837       94 

1847        95   1848      -78 

1857       105   1858       91 

1872       138   1875      127 

1893,  April,  99%  1895  Jan. .  79% 

The  fall  of  prices  is  partly  the  cause  of  panic,  partly  the 
effect  of  it — the  first  fall  leading  to  a  further  fall  in  the  ab- 
sence of  elastic  currency.  The  above  figures  do  not  fully  ex- 
press the  facts.  For  example,  the  105  expresses  the  average 
price  for  the  whole  year  1857  including  several  months  of 
panic  prices;  it  is  likely  that  108  or  110  would  more  truly 
represent  the  real  level  before  the  crisis. 

The  worst  injustice  and  dangers  of  rising  prices  are  far 
exceeded  by  the  evils  of  falling  prices  or  appreciating  money. 
A  falling  market  is  a  calamity  almost  as  .much  to  be  deplored 
as  civil  war.  It  ruins  merchants,  manufacturers  and  farmers, 
throws  men  out  of  employment,  and  leads  in  a  double  way  to 
failure,  depression  and  panic,  A  very  slight  fall  between  the 


58  PAPER  MONEY  VINDICATED  BY  HISTORY. 

time  a  merchant  or  manufacturer  buys  his  goods  or  materials 
and  the  time  he  sells,  may  turn  his  expected  profit  into  a  loss. 
He  borrows  money  to  tide  him  over,  hoping  next  year  to  re- 
cover; but  prices  fall  further  the  following  year,  and  instead 
of  relief  he  finds  the  loan  an  ever-increasing  weight  about  his 
neck.  Year  after  year  he  struggles  to  regain  what  he  has 
lost,  but  prices  continue  to  fall  and  his  difficulties  to  increase, 
until  at  last  he  fails.  His  creditors,  some  of  them  wrestling 
like  himself  with  falling  prices,  are  further  embarrassed  by 
his  bankruptcy,  and  their  names  are  soon  upon  the  list 
of  wrecks.  Failures  and  the  natural  impairment  of  industry 
due  to  the  discouragements  of  a  falling  market  throw  many 
out  of  work.  Having  no  employment  they  cannot  buy  as  they 
used  to,  and  a  shrinking  demand  is  added  to  the  dangers  and 
perplexities  of  commerce,  causing  a  further  fall  of  prices  and 
new  ruin;  and  so  the  inter-acting  causes  continue  their  sad 
work  till  stoppage  and  destruction  reach  such  vast  dimensions 
that  we  call  them  panic. 

Falling  prices  are  unjust  to  debtors;  their  debts  remain  the 
same,  but  their  means  of  payment  shrink.  The  note  calls  for 
as  many  dollars  as  ever,  but  the  number  of  bushels  of  wheat 
or  bales  of  cotton  that  must  be  sold  to  get  those  dollars  is 
double  what  it  was  when  the  money  was  borrowed  and  the 
note  was  written. 

Here  is  a  table  that  tells  the  story  of  the  farmers'  falls — 
the  Niagara  of  agriculture:  it  is  taken  from  "The  Key  Note," 
by  Albert  Griffin,  p.  197: 

VALUE  OF  AN  ACEE'S  PEODUCT. 

1866-70  1871-5  1876-80  1881-85  1886-90  1893. 

Corn    12.84  11.30           9.62  10.25           8.81   *  8.35 

Wheat 13.16  11.90  12.00  30.20           9.07  0.00 

Oats    10.  2  9.81            8.58            9.17  7.50  5.75 

Hay 13.28  14.38  11.57  11.15  10.19  10.00 

Cotton    28.01  28.55  17.65  15.63  13.84  10.65 


Total 78.21         75.94         59.42         56.40         49.44         40.75 

Average  ...   15.64         15.19         11.88         11.28  9.89  8.15 

Such  is  the  history  of  our  thirty  years'  war  upon  the  pro- 
ducts of  the  soil.  As  the  value  of  an  acre's  yield  diminishes, 
the  value  of  the  acre  itself  decreases  also.  Many  a  man  who 


PAPER  MONEY  VINDICATED  BY  HISTORY.  59 

put  his  savings  into  farm  land  years  ago,  giving  a  mortgage 
for  the  balance  of  the  purchase  price,  finds  to-day  that  the 
mortgage  has  swallowed  up  the  farm.  Suppose  he  had 
saved  five  thousand  dollars,  borrowed  five  thousand  more, 
and  bought  a  ten  thousand  dollar  farm  in  Kansas,  giving  a 
mortgage  for  the  money  he  had  borrowed.  To-day  the  farm 
is  not  worth  the  face  of  the  mortgage;  falling  prices  have  de- 
voured his  five  thousand  dollars  and  left  only  the  debt.  At 
the  start  the  farmer  and  the  mortgagee  had  equal  interests 
in  the  farm;  now  the  mortgagee's  interest  covers  the  whole 
farm,  and  the  farmer  has  nothing.  This  is  a  fair  example  of 
one  of  the  disastrous  processes  that  have  been  going  on  all 
over  the  country,  and  especially  in  the  "West  and  South,  and 
no  one  can  wonder  that  our  people  should  become  desperately 
hostile  to  a  monetary  system  that  causes  or  permits  such  evils. 
The  entire  product  of  our  farms  in  1895  was  worth  less 
by  6  per  cent,  than  in  1873,  altho  the  increase  in  the  num- 
ber of  hands  ivas  about  50  per  cent.,  in  the  number  of  acres 
also  about  one-half,  and  the  product  in  tons  and  bushels  had 
grown  about  100  per  cent. 


One  of  the  most  striking  illustrations  of  the 
effects  of  falling  prices  in  the  last  thirty  years  is  the  fact  that, 
after  having  paid  over  four  billions  and  a  half  in  interest  and 
principal  on  the  National  debt,  the  people  have  still  to  pay 
more  in  terms  of  commodities  to  settle  the  remainder  of  the 
debt  than  would  have  sufficed  to  cancel  the  entire  debt  at  its 
maximum  figure  just  after  the  rebellion.  Upon  an  average 
of  25  leading  commodities,  including  land  and  labor,  the  debt 
is  bigger  now  than  in  1866,  in  spite  of  the  hundreds  of  mill- 
ions that  have  been  paid  on  the  principal  since  that  date.  Presi- 
dent Andrews  says:  "Our  National  debt  011  September  1, 
1865,  was  about  2J  billions.  It  could  then  have  been  paid  off 
with  18  million  bales  of  cotton?  When  it  had  been  reduced 
to  a  billion  and  a  quarter,  30  million  bales  would  have  been 
required  to  pay  it"  ("An  Honest  Dollar,"  p.  13.)  Careful 
estimates  by  the  eminent  historian,  John  Clark  Ridpath,  will 
be  found  in  the  Arena  for  January,  1896,  p.  271.  The  re- 
sults briefly  stated  are  as  follows  : 


60  TAPEK  MONEY  VINDICATED  BY  HISTORY. 

AVERAGE  PRICES. 

MARCH,  1866.  CLOSE  OF  1895. 

Wheat,  per  bushel    $1.90  $0.58 

Flour,  per  barrel  10.75  3.50 

Cotton,  per  Ib 48  .085 

Mess  pork,  per  barrel  28.37  8.20 

Sugar,  per  Ib. 11125  .05 

Wool,  per  Ib 53  .215 

Beef,  per  cwt 15.25  9.50 

Bar  iron,  per  Ib 0675  .0267 

Superior  farm  lands,  Ohio  and  Miss- 
issippi valley,  per  acre  75.00  35.00 

The  National  debt,  March,  1866,  was $2,827,868,959 

The  National  Debt  at  the  close  of  1895  was  . .       1,126,379,106 

It  will  cost  more  to  pay  the  little  debt  now  than  the  big 
one  then: 

More  of  wheat  by  about    43% 

More  of  flour  by  about 38% 

More  of  cotton  by  about  140% 

More  of  pork  by  about 50% 

More  of  wool  by   about    8% 

More  of  bar  iron  by  about 10% 

It  will  cost  a  little  less  in  sugar  (2J  per  cent.),  beef  (30  per 
cent.)  and  land  (6  per  cent.)  to  pay  off  the  remnant  of  the 
debt;  but  to  pay  a  billion  now  will  take  about  double  the 
sugar,  beef,  and  land  that  was  required  to  pay  a  billion  of 
the  debt  in  1866,  and  upon  the  average  of  the  nine  great 
staples  above  mentioned  it  requires  a  great  deal  more  of  them 
to  pay  a  billion  now  than  it  did  to  pay  three  billions  at  the 
close  of  the  war. 

On  the  average  of  all  commodities  a  dollar  now  (1897)  will 
buy  nearly  100  per  cent,  more  than  in  1873,  and  over  100 
per  cent,  more  than  in  1866.  These  changes  have  benefited 
labor  in  some  respects — a  day's  wages,  as  a  rule,  will  buy  more 
than  in  1873  or  1866;  but  the  disastrous  effects  of  falling 
prices  upon  productive  activity  and  the  distribution  of  wealth 
have  more  than  counterbalanced  the  advantages  of  the  change. 
The  appreciation  of  money  is  of  little  avail  to  the  workman 
out  of  employment,  or  the  merchant  whose  business  has  shriv- 
elled into  insignificance,  or  the  farmer  whose  mortgage  ap- 


PAPER  MONEY  VINDICATED  BY  HISTORY.  61 


predates  as  fast  as  the  dollar.  The  increased  power  of  the 
dollar  is  of  no  use  to  the  man  who  can't  get  the  dollar;  a 
positive  detriment  to  him  when  it  is  that  very  increase  of 
power  that  crippled  his  business  or  threw  him  out  of  work, 
and  a  terrible  disaster  to  the  man  whose  debt  grows  bigger 
with  the  growth  of  the  dollar,  while  the  crops  or  other  prop- 
erty with  which  he  expects  to  pay  the  debt  depreciate  and 
disappear. 

The  United  States  Monetary  Commission,  Vol.  I.,  p.  50, 
says  that  "falling  prices,  misery  and  destitution  are  insepar- 
able companions/5  and  our  great  economist,  Francis  A. 
Walker,  says:  "Mr.  Balfour  was  fully  justified  in  saying  that 
a  slow  appreciation  of  the  standard  of  value  is  probably  the 
most  deadening  and  benumbing  influence  which  can  trouble 
the  springs  of  enterprise  in  a  nation. 8  6 

The  tables  prepared  by  R.  A.  Southworth,  Secretary  of  the 
National  Farmers'  Alliance,  show  in  another  way  how  fierce 
has  been  the  fall  of  prices  and  how  strong  has  been  the  ten- 
dency to  pour  the  product  of  the  country  into  the  laps  of  the 
official  and  directing  classes.  I  have  taken  Cleveland,  1896, 
instead  of  Harrison,  1892. 

Lincoln's  salary,  1866,  $25,000,  equal  to  10,310  bushels  of  wheat, 
Cleveland's  salary,  1896,  $50,000,  equal  to  86,000  bushels  of  wheat. 

PAID  TO  1866.  I  1894. 

Congressman    . .  $3,000—1,240  bu.  wheat.  $5,000=15,000  bu.  wheat. 

Governor $3,000=1,240  bu.  wheat.  $5,000=5,000  bu.  wheat. 

Legislator $4  a  day=l  2-3  bu.  wheat.  $7  a  day  =  21  bu.  wheat. 

Lawyer $5  a  day  =  2  bu.  wheat.  $10  a  day=30  bu.  wheat. 

Mr.  Southworth  has  taken  the  average  prices  given  by  the 
American  Almanac,  but  even  if  the  very  conservative  aver- 
ages of  Prof.  Bidpath  are  taken  for  the  calculation,  the  results 
still  show  that  while  the  farmer  has  continually  greater  diffi- 
culty in  obtaining  the  means  of  livelihood,  the  "upper  classes," 
as  they  are  called,  obtain  6  to  8  times  as  much  wealth  in  re- 
turn for  their  services  as  they  did  in  Lincoln's  time. 


(88)   American   Economic  Association,   Economic   Studies,    Vol.    I.,    No.    1, 
April,  1896,  p.  44. 


PAPER  MONEY  VINDICATED  BY  HISTORY. 

The  contrast  is  not  by  any  means  confined  to  wheat.     Some 
of  Mr.  South  worth's  other  figures  are  as  follows: 

LINCOLN'S  YEARLY  SALARY 
1864  TO  1868  WOULD  BUY 

AT    AVERAGE    NEW    YORK  HARRISON'S    SALARY 

PRICES.  1892     WOULD     BUY. 


Cotton    

j-Uj*w~rc?     k>LloXXdo* 

132  275  Ibs 

auvjuuu    uusiieis. 
fi^'i  00ft  lh«» 

Wool     

48  356  Ibs 

166  666  Ibs 

Rice    

110     tons 

060  tnn<3 

Butter    . 

68  870  Ibs 

0*0  000   lh« 

Sugar,   raw    
Mess  pork    

193,708  Ibs. 
959  barrels 

1,111,111  Ibs. 

*i  263   "harrpls 

Mess  beef   . 

1.042  barrels. 

fi  OfiO   VinT-T-fls 

Mr.  Southworth  remarks  that  in  the  early  period,  from 
1864  to  1868,  when  the  people  were  comparatively  free  from 
private  debt,  $100  for  payment  of  interest  or  principal  could 
be  obtained  with  40  bushels  of  wheat;  while  now,  when  the 
people  are  weighted  with  debt,  it  takes  2  or  3  hundred  bushels 
to  get  the  same  number  of  dollars  that  used  to  be  bought  with 
40  bushels.  These  tremendous  injustices  are  caused  or  per- 
mitted by  our  system  of  metallic  money. 

It  is  said  that  falling  prices  are  caused  by  cheapened  pro- 
duction, and  this  is  partly  true.  Part  of  the  fall  in  the  last 
thirty  years  has  been  due  to  the  appreciation  of  gold,  and 
another  part  has  been  due  to  cheapened  production  and  inten- 
sified competition  under  a  money  that  failed  to  counteract 
the  downward  tendency  of  prices.  The  system  is  as  much  to 
blame  in  one  case  as  in  the  other.  It  makes  no  difference 
whether  gold  moves  away  from  commodities  or  commodities 
move  away  from  gold;  whether  gold  has  appreciated  or  com- 
modities depreciated,  or  both;  the  result  has  been  a  falling 
market  with  all  the  disastrous  consequences  which  a  proper 
system  would  prevent.  There  is  abundant  evidence  in  the 
table  given  above  that  gold  and  silver  have  vibrated  through 
enormous  arcs,  becoming  less  valuable  with  each  new  mining 
discovery  and  growing  more  valuable  as  the  sources  of  supply 
failed  to  keep  pace  with  the  growth  of  business  requirements. 
The  movement  of  production  will  not  account  for  the  facts. 


PAPER  MONEY    VINDICATED   BY   HISTOKV.  63 

The  centuries  following  the  discovery  of  America  witnessed 
a  vast  industrial  advance  and  cheapening  of  production,  yet 
prices  did  not  fall;  they  rose  because  the  movement  of  money 
was  more  than  sufficient  to  counteract  the  cheapening  effects 
of  organization  and  invention.  Again,  from  1850  to  1866  art 
and  invention  and  business  grew  marvellously;  the  railroad, 
the  steamboat,  the  telegraph  and  thousands  of  labor-saving  de- 
vices worked  their  wonders  on  America,  yet  prices  rose.  It 
is  not  disputed  that  the  movement  of  gold  produced  the  great 
fall  of  prices  in  the  later  years  of  the  Koman  Empire,  and 
there  can  be  no  rational  question,  I  think,  that  it  has  shifted 
its  position  to  higher  values  since  the  demonetization  of  silver 
in  1873. 

But  this  is  entirely  immaterial  to  the  question  of  monetary 
responsibility  for  falling  prices.  Falling  prices  are  disastrous, 
whether  they  result  from  the  movement  of  business  and  in- 
vention while  the  gold  stands  still,  or  from  the  movement  of 
gold  while  business  stands  still,  or  from  the  combined  effect 
of  the  two  movements  in  opposite  directions.  If  a  merchant 
buys  at  50  and  the  price  falls  to  40,  he  is  ruined  just  the 
same  whether  the  fall  is  due  to  cheapened  production  or  to 
a  relative  scarcity  of  gold.  And  if  such  cases  are  numerous, 
as  they  will  be,  where  the  average  price  level  of  commodities 
is  sinking,  widespread  embarrassment  will  ensue.  In  a  com- 
petitive society,  falling  prices  and  disaster  are  inseparable 
companions  regardless  of  the  cause  of  the  falling  prices.  It 
is  the  business  of  a  monetary  system  to  adjust  itself  to  chang- 
ing conditions,  so  as  to  maintain  a  uniform  level  of  prices  in 
reference  to  the  great  staple  commodities  on  which  our  in- 
dustries are  based,  in  order  that  injustice  to  both  debtors  and 
creditors  may  be  avoided,  and  security  given  to  the  whole  in- 
dustrial system  so  far  as  possible. 

History  shows  that  this  has  been  done  and  can  be  done  by 
means  of  a  regulated  paper  money,  and  it  is  equally  emphatic 
that  it  has  never  been  done  and  probably  never  can  be  done 
with  a  system  based  on  gold  or  silver  or  both.  The  vicissi- 
tudes of  mining,  the  movements  of  production,  the  contin- 
gencies of  foreign  markets  and  the  conspiracies  of  speculators 


64:  PAPER  MONEY  VINDICATED  BY  HISTORY. 

make  a  uniform  level  of  metal  prices  a  practical  impossibility. 
Even  if  the  Government  should  become  the  owner  of  the 
mines  of  gold  and  silver  and  carefully  regulate  their  coinage 
and  issue  (the  only  way  in  which  it  appears  to  be  possible  to 
make  any  approach  to  a  fair  and  rational  metallic  system) 
even  then  it  would  be  difficult  if  not  impossible  to  counteract 
the  effect  of  changing  prices  in  other  countries  using  the  same 
metals.  Our  stock  of  gold  and  silver  would  be  subject  to  ex- 
haustive emmigration,  and  at  the  best  the  system  would  not 
outlast  the  life  of  the  mines. 

A  METAL  BASE  IS  A  CAUSE  OF  INDUSTRIAL  CRISES. 

The  variations  of  money  due  to  natural  or  artificial  causes 
constitute  a  prolific  source  of  panic,  originating  or  permitting 
and  intensifying  every  industrial  crisis. 

Wendell  Phillips  said:  "The  great  lie  called  ' specie  basis' 
has  destroyed  the  commercial  prosperity  of  the  United  States 
once  every  six  years  since  the  nation  started/'87 

Looking  over  the  history  of  England  and  America  we  find 
that  panics  of. the  first  magnitude  occurred  in  England  in 
1763,  1783,  1793,  1797,  1816,  1825,  1837-8,  1847,  1857, 
1866,  1875  and  1890-3,  and  in  the  United  States  in  1819, 
1825,  1837,  1839,  1847,  1857,  1873  and  1893  (with  a  plenti- 
ful supply  of  lesser  disasters  in  intermediate  years),  and  every 
one  of  them  was  either  directly  caused  by  the  movement  of 
money,  oo*  grew  to  ruinous  dimensions  because  the  money 
volume  failed  to  expand  at  the  proper  time  to  relieve  the  finan- 
cial pressure,  metallic  money  being  far  more  apt  to  shrink 
away  and  hide  itself  in  time  of  danger  than  to  come  to  the 
rescue  of  commerce  when  credit  money  is  shaken. 

A  few  great  failures  from  rash  speculation,  a  contraction 


(8T)  See  North  Amer.  Rev.,  Sept.,  1885,  p.  205.  Phillips  called  specie  basis 
a  lie,  because  coin  is  not  really  the  basis  of  our  mouey,  but  only  a  regulator, 
or  rather  a  misregulator  of  it.  The  true  basis  of  money,  that  which  makes 
it  pass  as  money  is  not  the  specie  reserve  but  the  legal  tender  quality  of 
the  currency.  The  vital  fact  is  not  specie  redemption  but  utility  redemption. 
Men  do  not  take  greenbacks  because  they  are  convertible  into  gold,  but 
because  they  are  convertible  into  food  and  clothes,  shelter  and  service,  and 
will  pay  debts  and  taxes.  As  a  matter  of  fact  they  are  not  convertible  into 
gold  except  to  a  very  limited  degree.  Complete  redemption  is  impossible. 
The  holder  of  bills  and  silver  token  monies  could  not  get  gold  for  them 
since  there  is  not  half  enoxigh  gold  in  the  United  States  to  make  the  re- 
demption. Even  partial  redemption  is  apt  to  fail.  "The  gold  dollar  is  never 
behind  the  dollar-bill  except  when  no  one  wants  it." 


PAPER  MONEY  VINDICATED  BY  HISTORY.  65 

of  the  currency,  an  adverse  balance  of  trade,  a  foreign  panic, 
large  sales  of  American  securities  held  abroad,  purchase  of 
gold  by  foreign  governments  or  banks,  any  drain  of  gold  to 
foreign  countries,  a  corner  on  gold  in  New  York,  or  a  rapid 
withdrawal  of  loans  by  concerted  action  of  powerful  bankers 
and  capitalists,  destroys  confidence,  produces  financial  strin- 
gency, and  brings  the  mercantile  classes  face  to  face  with 
ruin.  We  have  seen  that  France,  at  such  a  time,  averted 
panic  by  expanding  the  volume  of  her  independent  paper 
money.  And  that  is  the  simple  common  sense  cure  for  a  crisis, 
or  rather  the  common  sense  means  of  preventing  a  crisis,  for 
it  will  not  come  if  the  remedy  is  promptly  used.  When  one 
part  of  the  money  force  is  disabled,  the  other  part  should  be 
increased  sufficiently  to  do  the  work  of  the  injured  part. 
When  credit  money  or  non-legal-tender  money  fails,  and 
prices  begin  to  fall,  legal  tender  money  should  expand  to 
take  its  place.  People  fear  to  do  business  with  checks  and 
private  notes  in  panic  times  for  the  individuals  behind  the 
paper  may  prove  unable  to  make  it  good,  and  the  power  of 
individual  paper  to  pay  debts  and  make  exchanges  diminishes 
in  proportion  to  the  loss  of  confidence.  The  failure  of  credit 
and  the  necessities  of  merchants  and  manufacturers  who  must 
meet  maturing  liabilities,  causes  them  to  offer  their  goods  at 
lower  rates  to  raise  the  needed  money.  The  fall  of  prices  dis- 
courages industry  and  deepens  the  difficulty.  Men  are  afraid 
to  do  business  on  a  falling  market.  But  men  are  not  afraid 
to  do  business  with  cash  on  a  steady  market  or  a  rising  mar- 
ket. Full  legal-tender  money  backed  by  Federal  law  and  not 
issued  beyond  the  needs  of  trade  retains  the  confidence  of 
men  in  spite  of  panic,  because  the  nation  is  behind  it  to  make 
it  good  in  service  and  see  that  it  pays  its  face  in  debt,  where- 
fore it  does  not  lose  its  power  of  settlement  and  transfer  in 
periods  of  disturbance  as  individual  paper  does;  and  if  in 
threatening  seasons  legal-tender  currency  were  issued  in  suffi- 
cient volume  to  take  the  place  of  the  vanished  credit,  and 
counteract  the  tendency  to  falling  prices,  no  panic  would  ever 
materialize.  For  over  six  hundred  years  Venice  had  no  com- 
mercial panic.  Her  independent  National  money,  under  a 
wise  public  management,  was  always  adjusted  so  well  to  the 


00  PAPER  MONEY  VIKDICATED  BY  HISTORY. 

needs  of  trade  that  a  crisis  was  impossible*    We  have  had  eight 
tremendous  panics  in  less  than  eighty  years. 

The  adjustment  we  have  spoken  of  would  be  easily  possible 
with  Postal  Savings  Banks  and  Independent  National  Cur- 
rency under  public  control.  But  with  the  metallic  system 
the  legal-tender  money  shrinks  when  credit  shrinks,  instead 
of  expanding  to  fill  its  place.  No  sooner  does  panic  show  its 
head  than  people  begin  to  run  upon  the  banks,  compelling  the 
latter  to  draw  in  their  loans  and  not  infrequently  to  close  their 
doors,  thus  intensifying  the  pressure  instead  of  relieving  it. 
People  would  not  withdraw  their  money  en  masse  from  Pos- 
tal Banks  in  times  of  disturbance,  because  the  money  would 
be  safer  in  the  Government  Banks  than  anywhere  else,  at 
such  times  as  well  as  at  any  other  times;  and  even  if  they 
should  run  upon  these  banks  with  all  their  might,  and  draw 
out  every  dollar  of  their  deposits,  not  a  bank  would  close  its 
doors. 

There  would  be  failures  still,  so  long  as  the  competitive 
system  may  last,  for  men  will  speculate  and  some  of  their  ven- 
tures will  not  succeed,  but  panic  there  need  not  be  if  reason- 
able care  were  taken  to  prevent  the  pestilence  of  failure  from 
spreading  over  the  whole  community  and  involving  the  sound 
and  valid  members  of  the  industrial  system  as  well  as  the 
reckless  speculators.  Some  men  undertake  too  much,  espe- 
cially when  times  are  prosperous  and  prices  going  up.  When 
it  becomes  evident  that  their  enterprises  will  not  succeed, 
they  have  to  sell  out  or  be  sold  out  to  pay  their  debts.  This 
gives  a  fall  to  prices,  embarrasses  many  who  had  business 
relations  .with  the  bankrupts,  and  leads  capitalists  to  distrust 
the  future.  Loans  are  called  in,  money  is  hard  to  get,  mer- 
chants hard  pressed  to  pay  their  debts  raise  money  by  offer- 
ing their  goods  at  lowered  prices.  Many  a  man  whose  assets 
are  far  greater  than  his  debts,  is  nevertheless  ruined  because 
he  cannot  collect  what  is  due  him  in  time  to  meet  his  own 
obligations.  The  falling  market  paralyzes  industry.  The 
merchant  feeling  the  pressure  and  fearing  worse  to  come,  is 
determined  not  to  be  caught  with  a  large  stock  on  his  hands, 
so  he  orders  little  or  nothing  from  his  manufacturer  and  dis- 


PAPER  MONEY   VINDICATED   liY    HISTolIY.  07 

charges  all  the  employees  he  can  possibly  spare.  The  manu- 
facturer with  shrunken  orders  diminishes  his  force  and  runs 
on  half  or  three-quarters  time',  or  may  be  closes  his  mill  en- 
tirely. Labor  out  of  employment  cannot  buy,  the  market 
shrinks  still  more,  additional  discharges  and  new  shrinkages 
follow,  and  so  hard  times  go  on  intensifying  themselves  in  a 
grievous  circle,  like  the  bitter  words  of  angry  brothers.  The 
quarrel  could  be  avoided  by  a  gentle  word  at  the  first  rebuff, 
and  the  panic  would  never  exist  if  the  first  shock  were  met 
by  easy  loans  from  the  Government  to  the  embarrassed  mer- 
chants and  business  men  of  solid  worth,  in  order  to  tide  them 
over  the  trouble,  as  Pitt  did  long  ago  in  England,  and  as  our 
own  Government  did  in  1881. 88 

A  panic  may  come  with  the  turn  of  the  tide  from  rising 
to  falling  prices,  or  with  the  accumulated  effects  of  a  long 
term  of  falling  prices.  The  bursting  of  a  bubble  of  specu- 
lation, a  change  in  the  foreign  market,89  a  falling  off  in  the 
production  of  the  mines,  a  comer  in  gold,  a  deliberate  plan 
to  draw  in  large  loans,  the  demonetization  of  one  of  the  money 
metals — any  of  these,  may  produce  a  falling  market  and  in- 
dustrial panic.  But  of  all  the  causes  of  panic  none  deserves 
more  note  than  the  contraction  of  the  currency. 


(88)  See  pp.  72-8.    Some  slight  relief  was  also  afforded  in  1878  by  an  expan- 
sion of  $5,000,000  issued  from  the  Treasury,  but  the  issue  was  too  small  to  put 
the  industries  of  the  country  on  their  feet.    (Prof.  Suinner's  Hist,  of  Currency, 
pp.  218-9.)    The  British  "Bullion  Committee"  of  1810,  the  doctrines  of  whose 
report  Prof.  Stunner  says  (p.  248)  are  no  longer  disputable,  being  matters  of  ex- 
perience and  demonstration,  recorded  among  the  said  doctrines  an  emphatic 
statement  that  in  presence  of  a  panic  it  is  the  duty  of  the  Bank  of  England  to 
discount  freely  for  all  solvent  parties.    In  1825  the  Bank,  at  the  request  of  the 
Government,  lent  money  even  oil  goods.    In  1857  its  loans  on  private  securities 
went  up  55  millions  in  a  few  months.    In  the  crisis  of  I860  it  hart  only  29  millions 
cash  but  loaned  65  millions  in  the  first  few  days  of  the  panic,  the  Government 
assisting.    In  1890  the  Bank  again  came  to  the  aid  of  embarrassed  commerce 
(Hon.  Henry  Winn,  American  Maga/ine  of  Civics,  Dec.  18!>r>,  p.  r>8H.)    It  is  well  to 
use  the  Treasury  presses  to  fight  the  hoarders  and  panic  makers,  but  it  would  be 
better  to  stop  the  fluctuations  of  price  that  lead  to  panic  than  to  await  the  explo- 
sion—better prevent  the  conflagration  than  merely  to  fight  it  when  it  comes. 
Our  banks  are  more  apt  to  assist  the  flames  than  to  allay  them,  and  the  ( i<>\  em- 
inent seldom  comes  to  the  rescue.    In  the  panic  of  1898  the  National  banks, 
instead  of  relieving  the  money  famine,  actually  contracted  their  loans  140  millions 
in  the  worst  of  the  crisis,  and  in  the  whole  of  the  critical  period  from  May  4  to 
Oct.  3  they  contracted  their  loans  819  millions,  altho  their  cash  resources  had 
increased  meantime  by  26  millions.    (Winn,  pp.  576,587.) 

(89)  The  falling  of  prices  in  England  brought  upon  us  a  falling  market  and 
the  panic  of  1825,  which,  t  ho  not  so  severe  in  the  United  States  as  in  England, 
was  nevertheless  a  well  developed  panic  here.    (Simmer's  Hist.  Currency,  p.  85.) 
In  1886  the  failure  of  some  British  banks  precipitated  the  crisis  of  1887  on  both 
sides  of  the  water.    (Sumner,  p.  188.)    The  panic  of  1898  was  partly  due  to  dis- 
turbances in  the  London  money  market.    (See  Quarterly  .Journal  of  Economics 
Jan.  1894:  "Panic  in  United  States  in  1898,"  by  A.  C.  Stevens.)    But  there  were 
other  facts  in  the  case  with  us.    (See  below.) 

6 


68  PAPER  MONEY  VINDICATED  BY  HISTORY. 

Some  years  ago  an  eminent  economist  went  over  the  hist- 
ory of  industrial  crises  and  found  that  a  contraction  of  the 
currency  was  an  antecedent  factor  in  every  panic  that  had 
occurred  up  to  his  time  (Asa  "Walker's  Political  Economy)— 
not  always  the  initial  cause,  not  always  the  principal  cause, 
but  always  present  as  at  least  a  part  cause  of  the  crisis.  Dur- 
ing the  rebellion  the  currency  expanded,  prices  rose  and  pros- 
perity was  great.  Contraction  began  with  the  National  Bank- 
ing Act  of  1863,  which  provided  for  retiring  greenbacks  and 
issuing  National  bank  notes — $90,000  in  bank  notes  for  every 
$100,000  of  currency  cremated — a  contraction  of  10  per  cent, 
on  the  whole  volume  of  currency  used  in  supplying  a  basis 
for  the  National  banks,  tho  population  and  business  were 
growing  all  the  time.  But  this  was  only  the  prelude. 
The  curtain  rose  on  the  real  contraction  act  April  12,  1866, 
when  it  was  enacted  that  the  Secretary  of  the  Treasury  should 
be  authorized  to  sell  5.20  bonds  and  with  the  proceeds  re- 
tire United  States  currency.  In  1865  the  circulation  is  esti- 
mated to  have  been  between  1J  and  2  billions,  while  the 
funded  debt  was  $1,109,568,191.  From  September,  1865, 
to  September,  1867,  the  Secretary  of  the  Treasury  reported 
the  reduction  in  the  curency  as  $797,725,000.  By  June  30, 
1869,  the  money  in  circulation  had  fallen  below  f  of  a  billion 
and  the  National  bonded  debt  had  grown  to  be  $2,166,568- 
920.90  Prices  fell  from  216  in  1865  to  153  in  1869  and  137 
in  1873.  The  folowing  table  shows  the  results: 

TABLE  XII. 

YEAR.  NO.    OF   FAILURES.  LIABILITIES. 

1865     530  $17,625,000 

1866  1,505  53,782,000 

1867  2,386  86,218,000 

1868  2,608  63,774,000 

1869  2,799  75,054,000 

1870  3,551  88,242,000 

1871  2,915  85,250,000 

1872  4,069  121,058,000 

1873  5,183  228,499,000 


(90)  See  Comptroller's  Report  1889,  p.  35.  Sec.  Treas.  Rep.  Mess.  &  Docs. 
1867-8.  pp.  27-29.  Rep.  of  J.  T.  Power,  May  10,  1878.  United  States  Treasury 
Circular  No.  123,  July  1,  1896.  Care  must  be  taken  in  dealing  with  the  state- 
ments of  the  circular  and  those  of  recent  United  States  abstracts,  since  the 
currency  figures  given  for  some  of  the  earlier  years  differ  materially  from 
the  figures  given  for  the  same  years  in  earlier  United  States  Abstracts  and 
statements  of  the  Treasury  Department  made  at  the  time. 


PAPER  MONEY  VINDICATED  BY  HISTORY.  69 

The  embarrassment  of  business  was  so  severe  that  by  1873 
the  accumulated  effects  produced  a  terrible  panic  from  which 
the  country  has  not  even  yet  entirely  recovered'.  It  is  said 
that  in  1865  labor  was  well  "employed,  but  by  1873  about 
500,000  men  were  idle;  a  year  or  so  later  an  army  of  (ramps 
began  to  travel,  and  three  years  later  there  were  mere  than 
a  million  of  them  on  our  highways,  and  another  million  of 
idle  workmen  in  o>ur  homes. 

Some  of  our  foremost  financiers,  including  John  Sherman, 
vividly  predicted  the  ruin  that  would  follow  the  contraction 
of  the  currency  incident  to  the  scheme  for  resuming  specie 
payments.  The  United  States  Monetary  Commission  of  1876 
thoroly  investigated  the  panic  of  1873,  and  concluded  that  it 
was  caused  by  the  contraction  of  the  currency  and  consequent 
fall  of  prices.  The  Commission,  says: 

"However  great  the  natural  resources  of  the  country,  how- 
ever genial  its  climate,  fertile  its  soil,  ingenious  and  enter- 
prising its  inhabitants,  or  free  its  institutions,  if  the  volume 
of  money  is  shrinking  and  prices  are  falling,  its  merchants 
will  be  overwhelmed  with  bankruptcy,  its  industries  will  be 
paralyzed  and  destitution  and  distress  will  prevail." 

General  Ewing,  in  a  strong  speech  in  Congress  eighteen 
years  ago,  estimated  that  the  depreciation  of  values  due  to  con- 
traction amounted  to  one-third  of  the  whole,  and  that  the 
resumption  law  constituted  a  practical  confiscation  of  $3,500,- 
000,000  of  property. 

The  loss  to  the  laboring  classes  was  $3,000,000  a  day,  or 
more  than  $900,000,000  a  year. 

In  recent  years,  altho  the  currency  has  not  contracted  ab- 
solutely, but  on  the  contrary  has  increased  in  volume,  yet 
it  has  not  increased  sufficiently  to  keep  pace  with  business  and 
changing  conditions  of  production,  so  that  prices  have  con- 
tinued to  fall,  and  the  industrial  thermometer,  tho  showing 
slight  yearly  movements  up  and  down,  has  on  the  whole  per- 
sisted in  a  downward  course. 

During  the  early  years  of  the  Napoleonic  Wars  (1793-1797) 
England  was  in  a  most  alarming  condition.  Her  money  had 
fled  (as  our  money  did  at  the  breaking  out  of  the  rebellion, 


70  PAPER  MONEY  VINDICATED  BY  HISTORY. 

as  metallic  money  always  does  in  time  of  calamity),  a  finan- 
cial stringency  crippled  her  business,  a  panic  swept  over  her 
commerce  and  ended  in  a  run  on  the  bank  and  mutiny  in  the 
fleet  The  Government  was  induced  to  give  relief  by  loans 
to  the  business  classes,  and  was  at  last,  in  1797,  compelled 
to  suspend  specie  payments,  and  rely  entirely  on  a  paper  cur- 
rency. Immediately  the  business  of  the  nation  revived)  and 
for  eighteen  years  England  enjoyed  unparalleled  prosperity 
in  spite  of  the  heavy  drain  of  the  war.  And  she  might  have 
retained  her  industrial  glory  forever  had  she  retained  the 
policy  of  supplying  the  people  with  an  abundant  currency  and 
raising  revenue  by  a  heavy  income  tax  and  continued  the 
public  employment  and  direction  of  all  the  surplus  labor  in 
the  country,  not  in  army  and  navy  as  during  the  war,  but  in 
the  construction  of  roads,  parks,  buildings  and  all  manner  of 
public  improvements.  But  in  1816  she  demonetized  silver 
for  amounts  beyond  $10,  provided  for  the  resumption  of 
specie  payments  by  a, bill  passed  in  1819,  and  in  preparation 
therefor  began  to  fund  the  paper  currency  into  public  bonds. 
Prices  immediately  began  to  fall.  Profits  and  wages  declined. 
Kiot  and  ruin  followed.  The  farmers  petitioned  for  loans 
from  the  Government  at  low  interest,  but  without  avail. 
Crops  were  good  and  prices  low,  yet  the  working  people 
could  not  buy  bread.  The  net  results  of  the  contraction  and 
accompanying  fall  of  prices  were  wreckage,  poverty,  decades 
of  misery,  enormous  growth  of  the  fortunes  of  the  wealthy, 
and  ruin  of  all  others. 

Speaking  of  the  post-contraction  period  in  England,  1819 
to  1845,  the  historian  Alison  says:  "There  never  was  a  period 
in  which  a  greater  amount  of  financial  embarrassment  has 
been  experienced  by  the  Government  or  more  widespread  and 
acute  suffering  endured  by  the  people*  "Wages  were  in  many 
trades  low,  employment  difficult,  suffering  general,  and  yet 
the  period  was  one  of  great  increase  in  material  resources. 
It  may  safely  be  affirmed  that  the  anxiety  and  distress  which 
were  felt  during  this  brilliant  period  of  natural  growth  have 
never  been  surpassed.  The  distress  among  the  mercantile 
classes  for  years  after  the  dreadful  crisis  of  1825,  of  the  agri- 


PAPER  MONEY  VINDICATED  BY  HISTORY.  <  1 

cultural  interests  during  the  low  prices  of  1832-35,  and  of 
the  whole  community  from  1837  to  1842,  was  extreme.  The 
extraordinary  fact  has  now  been  revealed  by  statistical  re- 
searches that  in  an  age  of  unbounded  wealth  and  general  and 
long  continued  peace,  a  seventh  part  of  the  whole  inhabitants 
of  the  British  Isles  are  in  a  state  of  destitution,  while  70,000 
persons  have  among  them  an  income  of  200  million  pounds 
or  $14,000  each  per  year.  Frightful  strikes  occurred.  Crime 
made  unexampled  progress,  serious  detected  offenses  having 
multiplied  seven-fold  while  population  increased  but  70  per 
cent. ;  with  rapid  growth  of  wealth  and  great  effort  at  instruc- 
tion, crime  has  augmented  ten  times  as  fast  as  the  numbers  of 
the  people.  The  co-existence  of  so  much  suffering  in  one 
part  of  the  people  with  so  much  prosperity  in  another  is  un- 
paralleled. Capital  exists  to  profusion,  labor  adequate  to  any 
expansion  of  industry  is  at  hand,  yet  millions  are  pining  for 
employment."  Mr.  Alison  examines  the  various  theories  ad- 
vanced to  account  for  the  above  situation  (so  like  the  story  of 
our  own  country  since  the  beginning  of  contraction  here), 
and  finally  concludes,  as  we  have  already  seen  when  speaking 
of  England,  that  "the  contraction  of  the  currency  which  was 
made  to  accompany  the  resumption  of  cash  payments  has 
been  the  chief  cause  of  all  these  effects." 

Contraction  and  falling  prices  oppress  the  poor,  ruin  the 
middle  classes,  and  increase  the  power  and  affluence  of  many 
of  the  wealthy.91  Those  who  control  large  amounts  of  money 
are  able  to  take  advantage  of  the  distress  of  others  to  accu- 
mulate vast  property  for  themselves;  the  power  of  the  dollar 
and  its  possessors  is  increased;  the  congestion  of  wealth  in 
the  hands  of  a  few  materially  favored;  and  the  industrial  in- 
terests of  the  nation  in  every  way  disastrously  affected.  Con- 
traction and  its  sister,  failure  of  due  expansion,  are  among 
the  most  powerful,  insidious,  and  to  the  masses  of  the  people, 
unrecognizable  causes  of  evil  that  exist  in  this  world  of  mis- 
chief. 


(91)  Writing  of  the  United  States  in  1820,  when  panic  prices  had  brought 
wheat  to  20  cents  a  bushel  and  flour  to  $1  a  barrel,  Prof.  Suiuner  says: 
"Monev  was  plentiful  in  the  hands  of  those  who  had  no  debts  to  pay, 
where  'of  course  it  must  settle  whenever  the  social  umchiney  comes  to  a 
stand  still.  (Hist.  Currency,  p.  82.) 


72  PAPER  MONEY  VINDICATED  BY  HISTORY. 

Even  the  wealthy  as  a  rule  misunderstand  the  effect  of  fall- 
ing prices.  They  see  the  more  obvious  effect  of  increasing 
the  value  of  their  loans,  and  fixed  returns,  but  they  do  not 
appreciate  the  remote  effects.  If  they  realized  the  fact  that 
the  discouragement  of  industry  and  the  diminution  of  the 
total  product  more  than  balances  the  increased  proportion 
of  product  that  goes  to  the  creditor,  they  would  know  that 
falling  prices  are  really  a  detriment  to  the  moneyed  classes 
as  well  as  to  the  rest  of  the  community.  The  lender  gets  a 
larger  share  of  the  product  than  under  steady  or  rising  prices, 
but  the  total  product  is  so  much  diminished  that  his  share  is 
less  in  actual  amount  than  it  would  be  if  prices  were  steady. 
If  this  were  understood  and  the  insecurity  of  investment  in- 
cident to  falling  prices  were  given  due  weight,  there  would  be 
none  to  favor  or  be  content  with  a  falling  market,  except  the 
gamblers  and  wreckers,  who  profit  by  the  misfortunes  of 
others  rather  than  by  the  development  of  commerce  and  the 
growth  of  industry. 

It  must  be  remembered  that  aside  from  natural  causes  and 
the  movement  of  gold  to  foreign  parts,  serious  contraction 
of  the  currency  may  occur  not  merely  thru  legislative  action, 
but  thru  individual  action;  not  merely  by  withdrawal  of 
greenbacks  or  demonetization  of  a  money  metal,  but  thru 
the  recall  of  loans  and  the  hoarding  of  money  that  generally 
follow  any  disturbance  of  credit  or  appearance  of  danger; 
and  worst  of  all  perhaps,  thru  deliberate  conspiracy  to  wreck 
the  market  by  cornering  gold  or  calling  in  loans,  or  contract- 
ing the  circulation  in  order  that  the  conspirators  may  secure 
desired  legislation  or  possess  themselves  of  railroads,  factories, 
mines,  lands  and  other  properties  at  prices  that  represent  but 
a  fraction  of  their  cost. 

In  1881  there  occurred  a  sudden  and  simultaneous  action 
on  the  part  of  a  number  of  National  Banks  in  withdrawing 
about  18  millions  of  gold  and  U.  S.  currency  from  circula- 
tion to  deposit  with  the  Government  in  order  to  redeem  their 
bank  notes.  Interest  on  call  loans  went  up  to  1^  per  cent,  a 
day,  371  per  cent,  a  year.  lSTew  York  was  on  the  verge  of 
panic  and  probably  would  have  gone  over  the  edge  if  it  had 


PAPER  MONEY   VINDICATED  BY  HISTORY.  73 

not  been  for  an  order  from  the  Secretary  of  the  Treasury  for 
the  redemption  of  $25,000,000  of  bonds  on  presentation. 
This  concerted  disturbance  was  created  apparently  for  the 
purpose  of  killing  a  bill  then  pending  in  Congress  that  was 
obnoxious  to  the  National  Banks.  It  was  killed.  The  fol- 
lowing autumn  Secretary  of  Treasury  Windom  recommended 
Congress  to  prohibit  National  Banks  from  withdrawing  their 
circulation  without  notice,  and  President  Arthur  concurred 
in  the  recommendation;  but  no  such  restriction  has  been  en- 
acted.92 

There  is  evidence  tending  to  show  that  the  panic  of  1893 
was  not  entirely  a  natural  phenomenon.  The  moneyed  in- 
terests desired  the  unconditional  repeal  of  the  silver  purchase 
law.  It  was  openly  said  that  "The  quickest  if  not  the  only 
way  to  repeal  the  silver  purchase  law  is  to  precipitate  a  panic 
upon  the  country,  as  nothing  short  of  that  will  convince  the 
silver  men  of  their  error  and  arouse  public  opinion  to  a  point 
which  will  compel  the  next  Congress  to  repeal  the  Sherman 
law  whether  it  wants  to  or  not."93  The  panic  came  and  the 
silver  law  was  repealed. 

In  1896  it  was  commonly  understood  and  accepted  on  all 
sides  that  if  Bryan  were  elected  there  would  be  a  panic.  If 
the  moneyed  classes  cannot  have  the  President  they  want, 
and  the  kind  of  money  they  want,  then  there  will  be  an  earth- 
quake. 

Once  get  a  system  of  Postal  Savings  Banks  and  a  National 
currency  into  full  operation  and  no  class  in  the  country  could 
cause  a  panic;  but  under  the  present  system  a  very  few  men 
can  wreck  the  industries  of  the  nation. 

Is  a  monetary  system  with  such  a  history,  and  saturated 
with  such  disasters  and  iniquities,  worthy  the  acceptance  or 
retention  of  a  civilized  people? 

Even  the  banks,  tho  strongly  attached  to  the  metallic  sys- 


(9J)  See  Appleton's  Annual  for  1881,  pp.  129,  779;  and  "The  Money 
Question,"  by  G.  H.  Shibley,  pp.  410,  676.  If  there  were  a  law  requiring  the 
Government  in  case  of  stringency  to  loan  money  on  United  States  bonds  or 
other  good  securities  at  a  reasonable  Interest,  It  would  go  far  to  prevent  a 
corner,  collapse  or  temporary  contraction  from  developing  into  a  panic.  In 
Germany,  money  Is  loaned  by  the  Government  in  this  way,  but  only  to 
banks.  The  system  has  been  adopted  in  Austria-Hungary  and  Japan. 

(•»)  See  "Banker's  Magazine,"  New  York,  May,  1893,  p.  806. 


<4  PAPER  MONEY  VINDICATED  BY  HISTORY. 

tern,  abandon  it  in  panic  time.  Prof.  Sumner  says:  "The 
banks  suspend,  escape  the  results  of  a  folly  in  which  they  had 
full  share,  and  then  loan  their  notes  at  exorbitant  rates  to 
the  merchants  who  are  still  out  in  the  financial  storm.  This 
has  been  the  process  here  in  every  crisis  and  probably  will 
be  as  long  as  the  people  stand  it  without  complaint."94 

COIN  IS  A  COWARD. 

Metallic  money  is  very  timid.  It. goes  into  hiding  upon  the 
approach  of  danger.  When  the  country  needs  it  most  it  re- 
tires into  seclusion  or  journeys  to  foreign  shores.  In  battle 
it  deserts  the  flag,  while  independent  paper  goes  to  the  front 
unmindful  of  the  roar  of  cannon,  ready  to  do  its  duty  bravely 
in  the  face  of  the  enemy.95 


was  not  gold,  but  paper,  when  she  fought  the  great  Napoleon. 
And  paper  carried  the  Allies  thru  to  a  finish  at  Waterloo  and 
conquered  the  greatest  soldier  of  modern  times.  Coin  van- 
ished at  the  bugle  call,  and  paper  came  to  the  front  for  ser- 
vice. Napoleon  fought  with  gold  because  he  was  able  to 
keep  his  coffers  full  by  taking  the  treasures  of  nations  he 
subdued.  Nothing  but  martial  law  could  make  it  do  its  duty, 
and  even  then  it  failed  against  the  English  paper. 

THE  PATRIOT  PAPER  OF  THE  CONTINENTAL  CONGRESS 

burdened  as  it  was  by  overissue,  and  brought  to  ill  repute  by 


(M)  Hist.  Currency,  p.  137.  When  the  specie  basis  brings  a  crash,  the 
banks  suspend  specie  payments  and  let  paper  money  do  the  work  of  recupera- 

(95)  \\rhen  the  French  Revolution  broke  out  metallic  money  disappeared 
and  the  assignats,  tho  terribly  watered  by  overissues  and  grievously  cor- 
rupted with  heavy  injection  of  P>ritish  counterfeits,  carried  the  Republic 
thru  the  Storm  to  years  of  Comparative  safety  when  coin  was  ready  to  come 
out  of  doors  and  go  to  work  again.  The  depreciation  of  paper  caused  very 
great  hardships,  ruining  creditors  and  those  who  lived  without  labor  or 
settled  income,  but  it  helped  to  diffuse  the  wealth  of  the  nation  and  dis- 
tribute among  a  multitude  of  active  producers  a  large  amount  of  property 
that  had  formerly  been  held  by  a  few  individuals. 

In  China  more  than  a  hundred  years  before  the  Christian  era,  the  Emperor 
raised  funds  for  war  in  a  way  that  showed  a  keen  appreciation  of  the  value 
of  the  legal-tender-limited-volume  principle.  An  independent  currency  made 
of  the  skins  of  white  deer  was  used  as  money.  The  Emperor  collected  into 
a  park  all  the  white  deer  to  be  found  and  prohibited  his  subjects  from 
possessing  any  animals  of  this  monetary  variety.  Having  obtained  a 
monopoly  of  the  material,  the  Government  issued  pieces  of  white  deer  skin 
leather  as  money  at  a  high  rate,  (.tevons  Money  &  M.  of  Exc.,  p.  197.) 


PAPER  MONEY  VINDICATED  BY  HISTORY.  75 

spurious  rivals  tresspassing  incognito  in  its  domains,  never- 
theless enabled  the  Colonies  to  carry  the  battle^  thru  imd  free 
themselves  from  the  English  yoke.  Coin  vanished  with  the 
musketry  of  Lexington,  and  the  commerce  and  military  opera- 
tions of  the  Revolutionary  period  had  to  be  carried  on  with 
paper:  The  British  commanders  recognized  the  fadt  ihat  !he 
Continental  paper  constituted  the  sinews  of  war,  and  did  their 
best  to  destroy  it;  but  tho  it  was  mortally  wounded  on  the 
field  of  battle,  it  lived  long  enough  to  win  the  victory  for 
America. 

THE  GREENBACKS  OF  THE  SIXTIES 

saved  the  Union.  Gold  and  silver  disappeared  quite  early 
in  the  conflict.  In  1861  the  banks  of  Boston,  Philadelphia 
and  3STew  York  agreed  to  loan  the  Grovernment  $150,000,000 
in  specie>,  but  were  unable  to  carry  out  the  agreement,  and 
the  last  $50,000,000  of  the  loan  was  paid  by  tho  banks  to 
the  Government  in  demand  notes  of  the  United  States  which 
the  banks  had  at  first  refused  to  reciye  as  money.90 

Instead  of  borrowing  coin  from  the  banks,  we  think,  as  we 
have  already  intimated,  that  the  Government  ought  to  have 
abandoned  the  recreant  metals,  issued  full  legal  tender  green- 
backs, opened  Postal  Savings  Banks,  so  that  the  circle  of 
issue  and  deposit  would  have  brought  the  funds  round  again 
to  public  use  and  not  into  the  vaults  of  Wall  Street,  and  when 
the  volume  of  the  currency  showed  signs  of  more  rapid  growth 
than  might  be  deemed  wise,  the  Government  should  have 


(96)  Speeches  of  Thaddeus  Stevens  in  the  House,  Feb.  5th  and  20th,  1802. 
(Cong.  Record,  Part  1, 1801-2,  pp.  079,200.)  It  has  been  said  that  "  if  the  banks  had 
been  permitted  to  exercise  their  own  methods,  they  could  have  Continued  their 
advances  in  sums  of  50  millions  for  an  indefinite  period."  (Geo.  S.  Toe,  Pres. 
Amer.  Ex.  Hk.  N.  Y.,  in  Bankers  IVlaga/ine,  Jan.,  1S70,  p.  540.)  Before  the  first  pay- 
ment the  associated  banks  in  New  York  had  $49,7.'W,JMK)  In  coin,  and  after  ?«0,(]()IUXX) 
of  the  loan  had  been  paid  they  had  $42,81 8,010  of  coin,  a  reduction  of  only  f7,4ir>;{N); 
that  is,  if  the  banks  could  have  made  loans  to  the  Government  in  moderate  in- 
stallments with  an  interval  between  each  two  installments  sufficient  to  let  the 
coin  get  into  circulation  and  come  found  to  the  banks  again  in  payment  and 
deposit,  why  the  banks  could  have  kept  right  on  loaning  specie  to  the  Govern- 
ment. What  a  beautiful  plan!  The  banks  bad  loaned  nearly  twice  as  much 
specie  as  they  possessed  and  had  the  Government3*  bonds  for  about  eleven  times 
as  much  coin  as  they  had  lost,  and  if  they  had  only  been  allowed  to  keep  on  with- 
out interference  from  greenbacks,  they  might  have  been  able  to  pile  up  billions  of 
Government  bonds  in  their  vaults.  The  greenbacks  stopped  the  scheme  for  a  few 
years,  but  a  very  good  substitute  was  carried  into  effect  when  bonds  were  issued 
to  call  in  the  greenbacks  and  burn  them  up  preparatory  to  the  resumption  of 
specie  payments. 


76  PAPER  MONEY  VINDICATED  BY  HISTORY. 

called  upon  opulent  citizens  to  give  their  money  to  their  coun- 
try as  freely  as  it  called  upon  the  poor  to  give  their  lives  for 
the  Union. 

At  the  close  of  the  war  when  the  greenbacks  had  the  field, 
the  Government  should  not  have  contracted  the  currency 
50  or  60  per  cent,  in  order  to  return  to  specie  payments 
against  the  advice  and  warnings  of  many  of  the  ablest  states- 
men in  the  country.  It  should  rather  have  made  the  whole 
body  of  greenbacks  a  full  legal  tender  without  regard  to 
coin,  and  expanded  instead  of  contracting  the  volume  of 
money,  as  did  France  at  the  close  of  the  Prusssian  war,  so  as 
to  meet  the  larger  demands  upon  it  incident  to  a  reunited 
North  and  South,  the  entire  commerce  of  both  sections  being 
thereafter  dependent  on  the  currency  that  had  previously  had 
to  do  service  for  one  section  only;  and  last  but  not  least,  the 
nation  should  have  had  a  care  that  its  million  defenders  found 
employment  when  they  came  from  the  ranks,  and  provided 
employment  on  the  public  works  for  those  whose  labor  was 
not  absorbed  by  private  industry.  If  these  plain  principles 
of  justice  and  common  sense  had  been  heeded,  if  statesman- 
ship instead  of  capital  had  ruled  our  councils,  the  prosperity 
of  the  period  of  the  war  would  have  been  redoubled  in  time 
of  peace.  As  it  was,  the  burden  of  battle  was  no  sooner  lifted 
from  our  industries  than  the  burden  of  falling  prices  was 
fastened  upon  them;  the  industries  that  had  prospered  and 
grown  strong  under  the  load  of  civil  war,  languished  and 
grew  feeble  under  the  load  of  appreciating  gold. 

In  closing  these  remarks  upon  the  unreliability  of  metallic 
money  under  fire  or  in  any  stress  of  danger,  I  cannot  do  better 
than  quote  the  words  of  Senator  Ingalls  in  his  noble  speech 
in  the  United  States  Senate,  February  15,  1878: 

"No  people  in  a  great  emergency  ever  found  a  faithful  ally 
in  gold.  It  is  the  most  cowardly  and  treacherous  of  all  metals. 
It  makes  no  treaty  it  does  not  break.  It  has  no  friend  it  does 
not  sooner  or  later  betray.  Armies  and  navies  are  not  main- 
tained by  gold.  In  times  of  panic  and  calamity,  shipwreck 
and  disaster,  it  becomes  the  agent  and  minister  of  ruin.  No 
nation  ever  fought  a  great  war  by  the  aid  of  gold.  On  the 


PAPER  MONEY  VINDICATED  BY  HISTOEY.  77 

contrary,  in  the  crisis  of  the  greatest  peril  it  becomes  an 
enemy  more  potent  than  the  foe  in  the  field;  but  when  the 
battle  is  won  and  peace  has  been  secured,  gold  reappears  and 
claims  the  fruits  of  victory.  In  our  own  Civil  War  it  is  doubt- 
ful if  the  gold  of  New  York  and  London  did  not  work  us 
greater  injury  than  the  powder  and  lead  and  iron  of  the 
South.  It  was  the  most  invincible  enemy  of  the  public  credit. 
Gold  paid  no  soldier  or  sailor.  It  refused  the  National  obli- 
gations. It  was  worth  most  when  our  fortunes  were  the 
lowest.  Every  defeat  gave  it  increased  value.  It  was  in 
open  alliance  with  our  enemies  the  world  over,  and  all  its 
energies  were  evoked  for  our  destruction.  But  as  usual,  when 
danger  had  been  averted  and  the  victory  secured,  gold  swag- 
gers to  the  front  and  asserts  its  supremacy." 

CONCLUSIONS. 

Upon  the  facts  revealed  by  monetary  history  we  come  to 
the  following  conclusions: 

(1)  Metallic  money  is  not  to  be  relied  upon  in  war.     It 
caresses  the  conqueror,  but  deserts  the  oppressed.     It  cares 
nothing  for  justice,  liberty  or  country.     The  money  of  pat- 
riotism is  independent  paper. 

(2)  Metallic  money,  by  its  fluctuations,  is  a  cause  of  indus- 
trial disturbance  and  panic,  and  by  retiring  instead  of  ex- 
panding in  time  of  stringency,  it  adds  to  and  intensifies  the 
disturbances  produced  by  other  causes. 

(3)  The  history  of  metallic  money  is  characterized  by  long 
periods  of  falling  prices  more  disastrous  than  war  or  pesti- 
lence. 

(4)  A  nation  with  a  metallic  system  is  peculiarly  open  to 
industrial  and  political  disturbance  arising  from  monetary 
changes  in  other  countries,  whereas  an  inconvertible  paper 
currency  remains  serenely  unaffected  by  the  vicissitudes  of 
foreign  moneys. 

(5)  Metallic  money  is  the  friend  of  gamblers  and  specu- 
lators, affording  them  innumerable  opportunities  for  plunder 
in  its  periodic,  annual,  monthly  and  sometimes  daily  varia- 
tions, offering  them  thru  combinations  among  themselves  the 


78  PAPER  MONEY  VINDICATED  BY  HISTORY. 

inestimable  privilege  of  controlling  prices,  and  placing  at 
their  mercy  even  the  Government,  the  public  credit  and  the 
National  debt. 

(6)  The  volume  and  value  of  metallic  money  in  circulation 
is  governed  by  chance  and  private  manipulation;  the  contin- 
gencies of  mining,  the  movements  of  international  trade,  the 
changes  of  opinion  and  political  action  across  the  sea,  the  nar- 
rowing or  expanding  policies  of  combinations  of  capitalists 
in  New  York,  London  and  other  money  centres. 

(7)  Steady  prices -are  unknown    to    our    metallic    system. 
Prices  are  always  rising  or  falling,  and  continual  injustice  is 
being   accomplished   thereby.     Creditors    cheated    by  rising 
prices,  debtors  cheated  by  falling  prices,  the  normal  relations 
and  efforts  of  industry  disturbed  in  both  cases.     And  altho 
the  stimulating  effects  of  a  moderate  rise  of  prices  may  some- 
times justify  the  accompanying  injustice,  especially  after  a 
period  of  falling  prices,  when  a  rise  is  necessary  to  bring  in- 
dustry back  to  its  normal  level,  yet  when  once  the  normal 
level  is  attained  and  idle  labor  is  absorbed  at  reasonable  wages, 
there  is  reason  to  think  that  steady  prices  should  become  the 
rule.     Whatever  may  be  thought  of  slowly  expanding  prices 
when  not  required  to  overcome  the  effects  of  depression,  it  is 
clear  that  no  possible  justification  exists  for  falling  prices, 
which  mean  only  ruin  and  despair  to  the  producing  classes 
and  unjust  advantage  and  aggrandizement  to  the  owners  of 
money.    A  wise  financial  system  would  subject  the  movement 
of  money  to  scientific  control  in  the  public  interest,  aim  to 
avoid  all  needless  injustice  bet  wen  class  and  class,  all  panic 
and  depression,  or  undue  stimulation  of  industry.     In  other 
words,  it  would  keep  prices  steady  except,  perhaps,  where  a 
serious  emergency  or  calamity  called  for  the  aid  of  a  rise, 
which  if  ever  deemed  justifiable  as  a  deliberate  measure  after 
considering  all  less  objectionable  means  of  industrial  stimu- 
lation and  adjustment,  should  at  least  be  very  carefully  ad- 
ministered and  discontinued  as  soon  as  possible. 

(8)  History  shows  that  independent  paper  if  well  managed 
yields  steady  prices,  freedom  from  industrial  disturbance,  im- 
munity from  gambling  with  the  money  volume,  security  from 


PAPER  MONEY  VINDICATED  BY  HISTORY. 


79 


the  vicissitudes  of  mining  and  the  change  of  foreign  markets 
and  policies,  and  entire  protection  against  the  disastrous  do- 
minion of  chance  and  private  manipulation.  Even  when  not 
well  managed,  paper  money  produces  no  panics,  does  not  de- 
sert its  country  and  prove  false  to  its  creator  in  time  of  danger, 
and  mainly  places  such  injustice  as  it  brings  upon  the  shoul- 
ders of  the  rich,  the  idle  rich,  and  not  upon  the  laboring 
poor,  and  the  active  managers  of  industry.  On  the  contrary, 
steady  prices  appear  to  be  impossible  under  metallic  money. 
Fluctuation  is  inherent  in  it  and  no  nation  can  control  it.  And 
it  is  very  apt  to  build  the  fortunes  of  the  idle  rich,  pouring 
into  their  laps  unnumbered  millions  of  unearned  increment 
at  the  expense  of  the  active  and  owing  classes. 


Independent  paper  prop- 
erly managed  does  not  fluc- 
tuate. 

When  not  properly  man- 
aged its  fluctuations  favor 
the  debtor  and  producing 
classes,  diminish  the  relative 
power  of  the  idle  rich,  bring 
the  classes  nearer  together 
and  help  to  diffuse  the 
wealth  of  the  world. 


Metallic  money  has  fluc- 
tuation in  its  heart — it  is  in- 
herent in  it. 

And  its  changes  in  our 
generation  oppress  the  poor 
and  favor  the  rich,  burden 
the  active  debtor  and  bestow 
a  gift  on  the  idle  lender, 
discourage  production  and 
encourage  gambling,  widen 
the  breach  between  the 
classes,  and  give  to  the  few 
the  wealth  created  by  the 


many. 

Which  is  just  money? 
Which  is  rational  money? 

Which  is  the  people's  money? 


CHAPTER  II. 

THE  BEST  MONEY. 

Turning  from  the  history  of  the  subject  to  its  philosophy, 
we  have  to  consider: 

First. — The  purposes  or  functions  of  money. 

Second. — The  attributes,  essential  or  convenient,  which 
more  or  less  perfectly  fit  a  material  or  commodity  for  service 
as  money. 

Third. — "What  sort  of  money  combines  these  attributes  in 
the  highest  degree  of  perfection,  and  is,  therefore,  best  fitted 
to  fulfil  the  functions  of  money. 

PURPOSES  OF  MONEY. 

The  functions  of  money  in  civilized  society  appear  to  be 
five,  since  money  acts  as: 

1.  A  medium  of  exchange. 

2.  A  measure  of  value. 

3.  A  means  of  storing  or  transmitting  value  or  power  of 
purchase. 

4.  A  standard  of  deferred  payments. 

5.  A  regulator  of  production  and  distribution. 

Barter  is  too  complex,  cumbrous,  and  difficult  to  answer 
for  the  exchanges  of  a  highly  developed  community.  Some  ar- 
ticle is,  therefore,  selected,  first  by  custom  and  afterward  by 
law,  to  act  as  a  medium  in  terms  of  which  all  exchanges  may 
be  made.  This  device  lubricates  the  action  of  exchanges, 
avoids  the  transfer  of  bulky  articles,  permits  the  indefinite 
division  of  wealth  and  value,  and  renders  easy  a  volume  and 
variety  of  commerce  that  would  otherwise  be  impossible. 

MEASURING  VALUES. 

A  necessary  consequence  of  its  action  as  a  medium  of  ex- 
change is  the  power  of  money  in  the  measurement  of  value.1 

O  Jevons  "Money"  &c.,  pp.  5,  13;  Mill.  Polit.  Econ.  iii,  ch.  7,  sec.  1  and 
oh.  15;  Rogers  Pol.  Econ.  p.  22;  Marshall  Prin.  Econ.  sec.  5;  Prof.  Bowen 
Pol.  Econ,  293;  Walker,  "Money."  pp.  4-9,  64,  280-9.  The  latter  doubts  the 


THE    BEST   MONEY.  81 

Value  is  a  ratio.  If  cotton  is  selling  at  10  cents  a  pound,  corn 
at  50  cents  a  bushel,  and  wheat  at  $1,  the  value  of  a  bushel 
of  wheat  in  terms  of  corn  is  two  bushels  at  that  time  and 
place,  and  the  value  of  a  bushel  of  corn  in  terms  of  cotton 
is  5  Ibs.,  etc.  Little  or  no  idea  of  the  real  exchange  value  of 
a  commodity  can  be  obtained  by  comparing  it  with  one  or  two 
other  things.2  The  value  of  a  commodity  is  its  general  pur- 


validity  of  ascribing  to  money  the  function  of  measuring  values,  claiming  that 
it  acts  as  a  common  denominator  of  values,  but  not  as  a  measure  of  them. 
It  is  true  that  our  money  does  not  measure  values  by  final  test  of  a 
constant  something  inherent  in  itself  as  in  the  case  of  a  quart  measure  or  a 
pound  weight.  We  measure  with  it  as  we  would  with  a  quart  that  swelled 
and  shrank  and  had  to  be  compared  with  a  standard  back  of  it  in  order  to 
know  the  meaning  of  its  results.  It  would  not  be  wise  to  use  such  a  method 
of  measurement  unless  it  were  easier  to  compare  a  commodity  with  the  real 
standard  by  comparing  it  with  the  variable  measure  (money)  and  then 
comparing  this  with  the  standard  behind  it,  than  it  would  be  to  compare  the 
commodity  with  the  real  standard  directly  without  the  intervention  of 
money.  Money  serves  as  an  intermediator  between  the  commodity  to  be 
valued  and  other  commodities  in  general.  Its  power  of  representing  those 
commodities  (its  relation  at  the  given  time  and  place  to  the  real  standard) 
being  known  thru  prices)  it  becomes  a  means  of  measuring  the  said  com- 
modity against  commodities  in  general,  with  less  trouble  than  would  be 
required  by  the  complex  processes  and  statements  incident  to  the  direct 
measurement  of  a  commodity  against  others  by  way  of  barter. 

"In  a  state  of  barter  the  price-current  list  would  be  a  most  complicated 
document,  for  each  commodity  would  have  to  be  quoted  in  terms  of  every 
other  commodity,  or  else  complicated  rule-of-three-sums  would  become 
necessary.  Between  one  hundred  articles  there  must  exist  no  less  than  4950 
possible  ratios  of  exchange,  and  all  these  ratios  must  be  carefully  adjusted 
so  as  to  be  consistent  with  each  other,  else  the  acute  trader  will  be  able 
to  profit  by  buying  from  some  and  selling  to  others."  (Jevons  "Money" 
&e.,  p.  5.) 

All  such  trouble  is  avoided  if  some  one  thing  is  chosen  and  its  ratio  of 
exchange  with  each  other  commodity  is  quoted. 

The  real  nature  of  the  process  being  understood,  the  statement  that 
money  is  used  to  measure  values  seems  to  be  a  convenient  and  unobjection- 
able form  of  stating  one  of  the  functions  of  the  circulating  medium. 

Speaking  of  money  as  a  measure  and  recalling  the  fact  that  the  value 
of  money  varies  with  its  volume,  Dr.  C.  F.  Taylor  calls  attention  to  the 
fact  that:  "This  does  not  apply  to  yardsticks  and  bushels.  The  length  of 
a  yardstick  does  not  depend  in  any  way  upon  the  number  of  yardsticks  in 
existence;  and  the  size  of  a  bushel  measure  does  not  in  any  way  depend  on 
the  number  of  such  measures  in  a  country."  (Medical  World,  Aug.,  1897, 
pp.  347-8.  Unless  the  facts  are  fully  understood,  analogies  between  the 
money  measure  and  other  measures  are  likely  to  be  misleading  until  a 
system  of  finance  is  adopted  that  shall  keep  the  dollar  in  harmony  with 
the  real  standard  of  exchangeable  values. 

(-)  The  fact  that  a  bushel  of  wheat  commands  two  bushels  of  corn 
affords  very  little  information  as  to  the  value  of  either.  The  ratios  of 
both  to  other  commodities  may  be  high  or  low  or  medium,  i.  e.  both  wheat 
and  corn  may  be  dear  or  cheap  or  of  medium  price  compared  to  other  com- 
modities. 

So  with  the  relation  of  any  commodity  to  money;  the  price  of  a  com- 
modity or  service  tells  us  practically  nothing  of  its  value  till  we  know  the 
prices  of  other  commodities  and  in  the  fullest  sense  we  do  not  know  its 
value  till  we  ascertain  the  prices  of  all  other  commodities  and  services,  and 
so  understand  its  relative  position  to  the  entire  body  of  purchaseable 
things,  its  power  of  command  over  the  whole  range  of  products.  If  T 
were  told  that  at  a  certain  period  wheat  sold  for  $10  a  bushel  I  would  not 
know  its  value;  but  if  I  were  also  told  that  during  the  said  period  a  hat 
cost  $30,  a  pair  of  boots  .$40,  a  pound  of  beef  $2,  &c.,  I  should  begin  to  get 
a  glimmering  of  the  value  of  the  wheat.  When  I  read  that  in  the  latter  days 
of  Rome  one  two-hundredth  of  an  ounce  of  gold  (about  10  cts.  worth  now) 
would  buy  a  bushel  of  wheat,  I  get  no  idea  of  its  real  value;  the  general 
exchange  power  of  gold  may  have  been  (was)  so  great  that  (notwithstanding 
the  said  low  price)  a  man  could  get  more  in  exchange  for  a  bushel  of 
wheat  in  Rome  than  in  the  United  States  to-day  or  at  the  close  of  the 
Revolution,  when  it  took  a  pocket  full  of  money  to  buy  a  loaf  of  bread. 


82  PHILOSOPHY  OF  MONEY. 

chasing  power,  and  its  relation  with  other  commodities  as  a 
whole  must  be  understood  in  order  to  get  a  knowledge  of  its 
purchasing  power  or  command  over  commodities  in  general. 
This,  money  enables  us  to  do  with  the  greatest  ease  and  dm- 
plicity.  Having  the  price  of  a  bushel  of  corn  and  the  prices 
of  other  commodities,  we  can  ascertain  its  ratio  to  any  one 
commodity  or  any  combination  of  commodities,  and  so  meas- 
ure its  purchasing  power  or  exchange  value  in  terms  of  one 
commodity  or  all.  Money  serves  to  express  and  compare  the 
ratios  that  constitute  value,  measuring  one  commodity  against 
another  or  one  against  all  others1  or  any  combination  of  others. 
The  selling  price  of  wheat  being  ascertained  to  be  $1  a,  bushel, 
the  farmer  measures  by  that  fact  the  value  of  the  1,000 
bushels  he  possesses,  and  puts  it  down  as  $1,000,  which  means 
as  to  real  values  that  1,000  bushels  of  wheat  are  equivalent 
to  the  quantities  of  other  commodities  which  can  bo  bought 
for  $1,000' — a  quantity  dependent  on  the  prices  of  those  other 
commodities. 

STORING  THE  POWER  OF  PURCHASE. 

A  further  result  of  the  use  of  money  in  exchanges  is  that  it 
may  become  a  means  of  storing  value  or  power  of  purchase.3 
If  I  do  a  piece  of  work  for  $50  or  sell  goods  to  that  amount, 
receiving  five  ten  dollar  bills,  and  do  not  care  to  buy  anything 
with  the  money  now,  preferring  to  keep  my  power  of  pur- 
chase for  some  future  need,  or  take  it  to  a  distant  place,  I 
can  accomplish  my  purpose  by  simply  keeping  the  money. 
In  such  case  the  bills  in  my  pocket  become  a  store  of  pur- 
chasing power  or  exchange  value  always  ready  to  my  purpose. 
If  I  wish  to  transmit  say  $50  of  value  or  power  to  a  distant 
friend,  I  can  do  so  by  sending  the  bills. 

STANDARD   OF  PAYMENT. 

Money  performs  another  function  of  great  importance  in 
connection  with  borrowing  and  lending,  and  the  settlement  of 
debts  of  various  origin.  When  A  borrows  from  B  and  ,'s 
to  pay  B  at  some  future  date,  the  money  used  becomes  a  etan- 

(3)  Jevons  "  Money,  &c.,"  p.  15.    Compare  Walker,"  Money,"  p.  12. 


THE    BEST    MONEY.  83 

dard  of  deferred  payment4 — a  means  of  measuring  back  to 
the  lender  at  a  future  time  an  equivalent  for  what  he  lent. 
The  same  is  true  if  A  buys  goods  of  B  at  a  specified  price  and 
pays  for  them  at  a  later  date.  Any  debt,  whatever  its  origin, 
that  is  to  be  paid  after  an  interval,  brings  into  play  the  same 
principle. 

A  REGULATOR  OF  PRODUCTION  AND  DISTRIBUTION. 

None  of  the  powers  of  money  arising  from  its  use  as  a 
medium  of  exchange  are  of  more  importance  than  its  power 
to  regulate  enterprise,  and  modify  the  distribution  of  wealth. 
The  movement  of  the  money  volume  in  reference  to  the  busi- 
ness to  be  done  with  money,  or  its  failure  to  move,  causing 
or  permitting  a  rise  or  fall  of  prices,  will  change  the  relative 
proportions  of  product  that  go  to  laborer,  landlord,  capitalist 
and  entrepreneur,  stimulate  or  depress  industrial  motive,5  in- 
crease or  diminish  tiie  weight  of  every  debt,  and  exert  upon  the 
industrial  system  an  influence  so  profound  that  panic  or  pros- 
perity may  wait  upon  its  whim. 

Wages,  rent,  interest  and  profits  represent  the  classes  among 
which  the  yearly  product  is  divided:  Wages  to  the  workers, 
rent  to  the  landlords,  interest  to  the  capitalists,  profits  to  the 
entrepreneur  or  manager  and  director  of  industry  who  borrows 
capital,  employs  labor,  and  takes  the  responsibility  of  enter- 
prise for  the  sake  of  profit.  The  money  value  of  wages,  rent 
and  interest  has  a  considerable  stability  or  inertia  due  partly 
to  the  effect  of  time  contracts,  and  partly  to  the  fact  that  a 
change  in  the  purchasing  power  of  money  is  not  readily  seen, 
and  appreciated.  The  result  is  that  every  change  in  general 
prices  seriously  alters  the  distribution  of  product.  A  rise  in 
prices  increase  the  share  of  the  entrepreneur  and  decreases  the 
shares  of  laborer,  landlord  and  capitalist.  Wages,  rent  and 
interest  do  not  go  up  at  once  upon  the  rise  of  goods,  but 
follow  after  an  interval  if  at  all.  To  bring  out  the  case,  sup- 


(*)  Walker,  "Money,"  p.  10.    Jevons,   "Money,  &c,"  p.  14. 

(5)  See  the  discussion  by  Prof.  J.  Allen  Smith,  Annals  of  Amer.  Acad.  of 
Polit.  &  Social  Science,  Vol.  VII,  No.  2,  pp.  3-6.  And  Gen'l  Francis  A. 
Walker's  "Money  in  its  Relation  to  Trade  and  Industry."  Most  economists, 
when  speaking  of  the  functions  of  money,  say  little  or  nothing  of  i 
as  a  regulator  of  industry  and  distributor  of  wealth,  but  Professor  Smith 
and  Pres.  Walker  give  proper  emphasis  to  this  most  vital  function. 

7 


84  RATIONAL  MONEY. 

pose  that  prices  are  doubled.  The  entrepreneur  has  for  a 
time  the  same  interest,  rent  and  wages  to  pay  as  before,  but 
receives  twice  as  many  dollars  for  his  goods;  his  profits  are 
consequently  very  much  increased;  he  is  eager  to  push  his 
business,  borrows  more  capital,  employs  more  labor,  embarks 
in  new  enterprises,  and  business  is  very  lively;  too  much  so 
sometimes  for  safety  to  men  of  insufficient  caution.  The 
worker  on  a  fixed  salary  renders  services  which  bring  his 
employer  twice  as  many  dollars  as  before  the  rise,  but  he 
only  gets  the  same  wage,  until  it  slowly  dawns  upon  him  that 
the  prices  of  what  he  has  to  buy  are  higher  than  they  used 
to  be  and  that  business  is  good  with  his  employer;  then  he 
asks  for  more  pay.  The  employer  gives  him  a  small  increase, 
often  a  mere  fraction  of  the  rise  in  goods,  and  the  worker  is 
satisfied  as  a  rule  because  he  is  used  to  thinking  of  the  dollar 
as  something  absolute,  and  since  he  is  getting  .more  dollars, 
he  must  be  better  off.  He  sees  the  rise  of  wages  and  does  not 
clearly  comprehend  the  general  rise  of  prices  and  its  precise 
quantitative  bearing  upon  his  interests. 

A  fall  in  prices  has  exactly  the  contrary  effect.  The  entre- 
preneur cannot  scale  down  the  debt  he  owes,  or  the  rent  or  sal- 
aries he  has  agreed  to  pay;  his  liabilities  remain  the  same, 
while  his  income  shrinks  and  his  profits  are  cut  down  or  may 
be  turned  into  a  loss.  He  is  discouraged,  has  no  motive  to 
undertake  the  risks  of  business  in  face  of  a  falling  market,  and 
as  he  constitutes  the  active  force  in  industry,  the  man  who 
takes  the  initiative  in  production,  the  result  is  that  industry 
languishes.  It  makes  no  difference  what  may  be  the  cause 
of  falling  prices,  the  result  will  be  the  same.  If  prices  fall 
because  of  invention  and  improvements  in  production,  the 
effect  is  the  same  as  when  they  fall  because  of  increasing 
scarcity  of  gold.  If  the  entrepreneur,  merchant  or  manufac- 
turer has  to  sell  for  less  than  enough  to  pay  the  fixed  charges 
resting  upon  him — the  rent,  interest  and  wages  he  has  agreed 
to  pay,  and  the  price  of  materials  and  goods  he  bought  on 
time — he  is  ruined  just  the  same,  whatever  the  cause  of  the 
fall  in  the  market.6 


(8)  Inventions    and    improvements    in    production    while    they    are   of    the 
highest  advantage  to  society  when  their  benefits  are  Justly  distributed,  may 


THE    BEST    MONEY. 


Falling  prices  injure  labor  also,  unless  employed  on  time 
contract  or  at  a  fixed  salary.  It  is  true  that  falling  prices  in- 
crease the  purchasing  power  of  the  wages  received  by  ordin- 
ary labor,  but  it  does  not  follow  that  labor  is  better  off.  The 
total  amount  of  wages  must  be  considered  as  well  as  the  rate.7 

A  falling  market  reduces  production,  throws  labor  out  of 
employment,  compels  factories  to  close  or  run  on  short  time, 
and  the  amount  of  wages  received  per  worker  in  the  course  of 
a  year  is  often  so  much  less  as  to  rnoro  than  balance  the 
effect  of  the  added  purchasing  power  in  the  few  dollars  that 
are  obtained.  Better  have  500  normal  dollars  than  100  dol- 
lars of  double  the  normal  value. 

It  appears  then  that  money  thru  its  action  upon  prices  has 
a  vital  regulative  influence  on  the  whole  industrial  system. 
This  power  of  money  to  control  and  direct  industrial  forces 


for  a  time  cause  serious  disturbance  and  large  injustice  to  laborers  and 
active  business  men  thru  the  imperfect  distribution  of  the  burdens  attend- 
ing the  destruction  of  capital  and  the  displacenmt  of  labor  that  accompany 
their  introduction.  Workers  are  thrown  out  of  employment,  and  reduction 
in  the  value  of  existing  capital  occasioned  by  the  invention  or  improvement 
falls  entirely  upon  the  entrepreneur.  Industrial  capital  is  owned  by  two 
classes,  interest  receivers  and  profit  receivers.  The  latter  have  the  manage- 
ment. The  property  of  the  interest  receiving  class  exists  in  the  form  of  a 
mortgage  or  fixed  money  claim  upon  the  capital  and  product  of  economic 
society.  Their  principal  and  interest  constitute  a  first  claim  on  the  capital 
and  earnings  of  industry.  Dividends  and  profits  come  afterward.  The 
entrepreneur  must,  therefore,  sustain  the  loss  of  capital  occasioned  by  im- 
provements. His  debt  to  the  interest  receiver  is  as  large  as  ever,  and  the 
machinery  he  bought  with  the  borrowed  money  is  worth  less  than  before  by 
the  whole  effect  of  the  improvement.  It  is  one  of  the  great  injustices  of  the 
present  system  that  the  active  capitalist,  the  initiator  and  manager  of  in- 
dustry has  to  bear  the  whole  burden  of  depreciation  caused  by  improve- 
ments, while  the  passive  capitalist  escapes.  If  either  class  of  capitalists  is 
to  receive  a  special  benefit  at  the  expense  of  the  other,  equity  would  demand 
that  favor  should  fall  on  the  active  and  not  on  the  passive  capitalist. 
Those  who  take  no  active  part  in  industry  should  not  fare  better  than  the 
captains  of  production.  Progress  should  not  punish  the  progressive  in  pre- 
ference to  the  non-progressive.  (See  the  admirable  discussion  by  Prof.  J. 
Allen  Smith,  Annals  A.  A.  P.  &  S.  S.,  Mar.  '96,  of  which  this  note  is  a 
condensation.) 

(7)  The  facts  in  relation  to  the  movement  of  wages  as  prices  change  are 
of  the  utmost  interest  and  importance.  We  must  carefully  distinguish  be- 
tween wage  rates  and  aggregate  wages.  According  to  the  Aldrich  Report, 
money  wages  rose  in  the  ratio  of  100  to  148  per  cent.,  from  1860  to  1SG5. 
while  general  prices  rose  in  the  ratio  of  100  to  232.  From  1873  to  1879, 
money  wage  rates  fell  in  the  ratio  of  166  to  134,  while  general  prices  declined 
in  the  ratio  of  129  to  95.  The  accuracy  of  these  figures  is  not,  however, 
satisfactory.  They  are  suggestive,  but  not  absolutely  reliable.  Dr.  Chas.  B. 
Spahr,  economic  editor  of  The  Outlook,  has  written  an  article  on  "The  Gold 
Standard  and  the  Wage  Earner,"  which  is  to  appear  in  the  National 
Review,  London,  and  which  contains  the  results  of  some  very  valuable  re- 
searches on  this  subject.  The  author  nnds  that  average  wages  have  con- 
siderable inertia,  but  that  aggregate  wages  move  very  quickly.  From  1873 
to  1879  the  reduction  in  average  daily  wages  had  been  14  per  cent.,  the 
reduction  in  the  number  employed  17  per  cent.,  prices  had  fallen  17  per 
cent,  and  aggregate  wages  had  fallen  29  per  cent.  From  1879  to  1883  prices 
rose  aboue  10  per  cent.,  the  average  daily  wage  rose  about  13  per  cent.,  while 
aggregate  wages  rose  58  per  cent.  From  1893  to  1895,  by  the  Mass.  Labor 
Reports,  aggregate  products  fell  17  per  cent,  and  aggregate  wages  16  per 
cent.,  while  average  wages  fell  about  7  per  cent.  By  the  Pennsylvania 
Labor  Reports,  aggregate  products  and  wages  fell  off  about  33  per  cent., 
while  average  wages  and  prices  declined  only  about  13  per  cent. 


86  PHILOSOPHY  OF  MONEY. 

arid  determine  the  distribution  of  wealth  is  of  the  utmost 
moment  economically,  politically  and  socially,  and  must  be 
moet  carefully  considered  in  constructing  a  scientific  system 
of  finance. 

ATTRIBUTES    OF    MONEY. 

Coming  now  to  consider  the  attributes  necessary  or  desir- 
able in  the  performance  of  the  above  functions,  we  find  that 
the  following  qualities  will  be  either  essential  or  advantageous 
to  whatever  may  be  chosen  to  act  as  money. 

1.  General   receivability    or    acceptabilty — willingness    of 
people  to  receive  in  exchange  for  commodities  and  services 
and  in  payment  of  debt,  etc. 

2.  Limitation  of  volume.  ,  j  •; 

3.  Steadiness  of  value.  « 

4.  Portability. 

5.  Ease  of  keeping. 

6.  Ease  of  concealment. 

7.  Difficulty  of  counterfeiting. 

8.  Durability. 

9.  Divisibility. 

10.  Elasticity. 

11.  Uniformity. 

12.  Cheapness. 

Concerning  most  of  these  qualities  a  word  will  be  sufficient. 
Durability  and  elasticity  are  needful  for  steadiness  of  value, 
and  may  be  referred  to  that  head.  Large  susceptibility  to 
division  is  convenient  but  not  always  essential — the  cattle 
used  as  money  in  many  countries  did  not  possess  it.  In  a 
state  of  advanced  commerce  however  a  considerable  divisi- 
bility becomes  quite  necessary.  The  same  thing  may  be  said 
as  to  uniformity — one  cow  was  not  always  the  equivalent  of 
another  unit  of  bovine  currency.  There  was  one  uniformity 
about  it  tho.  The  taxpayers  of  Massachusetts,  when  cows 
were  legal  tender,  quite  uniformly  paid  their  taxes  in  the 
smallest  and  leanest  kine.  Portability  is  good  but  not  essen- 
tial; living  money  had  little  of  it;  grain  has  been  found  very 
bulky,  and  gold  and  silver  very  heavy  when  large  payments 
have  to  be  made.  Ease  and  safety  in  keeping  are  good,  but 


THE   BEST   MONEY.  8Y 

not  necessary — cattle  cannot  be  put  in  your  inside  pocket,  and 
you  could  not  keep  that  sort  of  money  very  well  in  a  Boston 
flat.  Difficulty  of  counterfeiting  is  an  excellent  thing  in 
money,  but  not  essential.  The  Continental  money  and  the 
French  assignats  were  very  faulty  in  this  respect,  but  never- 
theless they  did  undoubted  duty  as  money.  Cows  are  perhaps 
superior  in  this  respect  to  either  gold  or  silver  coin  or  paper 
money.  Cheapness  is  good,  other  things  equal;  i.  e.,  if  a 
money  that  costs  very  little  labor  can  be  made  as  efficient  as 
a  money  that  costs  much  labor,  the  first  should  have  the  pre- 
ference. Cheapness,  however,  is  not  esesntial.  The  same  is 
true  of  steadiness  of  value— it  is  admirable,  but  not  essential. 
Gold,  silver,  paper,  cattle,  furs,  every  money  that  has  ever 
been  used  has  been  subject  to  more  or  less  variation  in  value. 

INTRINSIC  VALUE. 

There  is  a  common  notion  that  money  must  have  or  ought 
to  have  what  is  called  "intrinsic  value."  The  idea  is  that 
paper  is  not  real  money  but  only  "representative"  money,  rep- 
resentative of  gold  or  silve^  or  some  "real"  money  made  out 
of  some  material  having  an  inherent  value  of  its  own,  which 
sustains  its  purchasing  power  independently  of  any  legal- 
tender  quality.  "Representative"  money  is  supposed  to  be 
defective  unless  it  can  be  exchanged  upon  demand  for  a  stated 
weight  of  gold  or  silver  or  other  money  possessing  inherent  or 
intrinsic  value.  It  is  thought  by  some  that  it  is  only  by  such 
convertibility  that  paper  money  can  retain  its  value,  and  it 
is  further  said  that  nothing  destitute  of  intrinsic  value  can  be 
real  money,  because  nothing  without  value  of  its  own  can 
measure  the  values  of  other  things.  We  have  to  use  length  to 
measure  length,  capacity  to  measure  capacity,  and  value  to 
measure  value,  Whatever  we  measure  must  be  measured  by 
a  unit  of  the  same  nature  as  itself.  (See  Prof,  Bowen's  Pol. 
Econ.,  p.  293.) 

Let  us  examine  the  last  point  first:  (1)  It  is  not  quite  true 
that  whatever  we  measure  must  be  measured  by  units  of  its 
own  nature.  For  example,  with  a  thermometer  we  measure 
heat  by  units  of  length. 


88 


RATIONAL  MONEY. 


(2)  As  we  have  seen  when  speaking  of  the  second  function 
of  money,  values  are  not  measured  by  anything  inherent  in 
the  thing  used  as  money,  but  by  comparison  of  the  relations 
between  money  and  the  commodity  to  be  measured — with  the 
relation  betwen  money  and  commodities  in  general.     Strictly 
speaking,  money  does  not  measure  the  value  of  commodities, 
but  only  enables  us  to  measure  it  by  means  of  a  double  com- 
parison, giving  us  the  exchange  power  of  the  commodity  in 
terms  of  commodities  in  general,  which  exchange  power  consti- 
tutes the  value  of  the  commodity. 

(3)  To  say  that  we  must  have  value  to  measure  value  does 
not  prove  that  we  must  have  "intrinsic"  value  in  order  to  per- 
form the  measurement.     It  is  not  utilities  that  are  measured 
by  money,  but  exchange  values.     We  don't  measure  intrinsic 
values  with  money,  nor  measure  by  intrinsic  values.    We  can't 
measure  exchange  values  by  intrinsic  values  unless  by  intrin- 
sic values  we  mean  exchange  values;    and    exchange    value 
arising  from  the  use  of  an  article  as  money  will  do  as  well 
for  purposes  of  measurement  as  exchange  value  arising  from 
its  use  in  the  arts  or  in  any  other  relation  to  human  need.  A  bit 
of  stamped  paper  used  as  a  medium  of  exchange  fulfills  as 
valuable  a  purpose,  is  just  as  useful,  as  a  bit  of  iron  fashioned 
into  a  spade,  or  a  bit  of  silver  stamped  into  the  shape  of  a 
spoon,  or  a  bit  of  gold  made  into  a  breastpin.     A  piece  of 
paper  that  will  exchange  for  commodities,  services,  taxes,  etc., 
has  exchange  value  as  truly  as  corn,  cotton,  cattle,  silver  or 
gold. 

(4)  To  give  a  paper  dollar  exchangeable  value  it  is  not  ne- 
cessary to  make  it  convertible  into  gold  or  silver,  but  only,  by 
law  or  usage,  to  make  it  generally  receivable  in  payment  of 
debts,  taxes,  etc.     Dr.  C.  F.  Taylor,  of  Philadelphia  (whose 
admirable  "Monthly  Talks"  in  The  Medical  World  contain 
some  of  the  best  and  clearest  statements  of  great  questions  that 
are  to  be  found  in  our  literature),  has  many  times  exposed 
the  fallacy  of  the  "intrinsic  value"  hypothesis,  and  shows  that 
rcceivability  is  much  more  important  than  convertibilty.     On 
p.  525  of  The  Medical  World  for  December,  1897,  is  printed 
a  letter  from  Secretary  of  the  Treasury,  L.  J.  Gage,  to  Dr. 
Taylor,  in  which  the  Secretary  says: 


THE    BEST    MONEY.  89 

"While  the  Government  does  not  specifically  redeem  either 
silver  dollars  or  silver  certificates  in  gold,  it  receive*  them  the 
same  as  gold  (i.  e.,  at  face  value)  in  payment  of  all  debts  due 
to  the  United  States.  This  amounts  to  a  practical  daily  re- 
demption of  such  dollars  and  certificates  in  large  amounts." 

(5)  Examine  one  of  our  silver  certificates,  of  which  there 
are  several  hundreds  of  millions  in  circulation.      You  will 
find  that  it  is  not  redeemable  in  gold,  but  only  in  silver  worth 
at  this  time  less  than  half  the  face  value  of  the  certificate — 
less  than  fifty  cents  on  the  dollar;  yet  the  certificate  passes 
at  its  full  face  value  because  everybody  knows  it  has  receivabil- 
ity — because  it  is  redeemable  in  services,  and  commodities  and 
settlement  of  debt. 

(6)  The  case  is  the  same  with  the  silver  dollars  themselves:; 
it  is  not  their  intrinsic  value  that  makes  them  pass  at  par,  for 
their  intrinsic  value  is  less  than  half  the  par.     It  is  the  fact 
that  they  are  receivable  for  the  same  things  that  gold  dollars 
are  receivable  for — the  fact  that    they    will    do   the    money 
work,  the  exchange  service  that  gold  will  do.    It  is  that  fact 
that  keeps  their  value  level  with  gold,  and  would  keep  it  so 
even  if  the  silver  in  them  were  not  worth  one  cent  to  the 
hundred. 

(7)  Even  in  the  case  of  gold,  the  intrinsic  value  of  the 
material,  the  value  it  would  have  as  a  commodity  for  use  in; 
the  arts,  the  value  it  has  independently  of  what  comes  to  it 
by  reason  of  its  use  for  monetary  purposes,  is  comparatively 
small,  and  is   not  the  value  that  is  used  in  money  measure- 
ments. 

Silver  fell  in  value  from  70  to  50  cents  in  a  few  days  when 
the  Indian  mints  were  closed  to  it,  and  its  demonetization  in 
Germany,  France.,  the  United  States  and  other  countries  has 
reduced  the  value  of  371 J  grains  (the  weight  of  silver  in  a 
dollar)  from  its  former  level  of  100  cents  to  its  present  level 
of  35  cents.  If  all  the  countries  that  still  use  silver  for  money 
were  to  demonetize  it,  there  is  no  doubt  that  its  value  would 
sink  much  lower  yet,  and  it  is  safe  to  say  that  at  least  two- 
thirds  of  the  value  silver  possessed  in  1873  was  derived  from 
its  use;  as  money;  its  mere  commodity  value,  its  intrinsic  value, 


PHILOSOPHY  OF  MONEY. 

was  less  than  one-third  of  its  exchange  value  when  it  was  a 
full  legal-tender  money  and  the  mints  were  open  to  its  coin- 
age. 

If  silver  had  been  made  the  sole  money  metal,  and  if  gold 
had  been  demonetized  by  the  leading  nations  in  1873  and  fol- 
lowing years,  there  can  be  no  doubt  that  the  value  of  gold 
would  have  fallen  very  greatly  for  the  same  reason  that  silver 
has  fallen,  viz.,  the  diminution  of  demand  without  a  corre- 
sponding diminution  of  supply.  The  main  demand,  or  the 
main  element  in  the  demand,  for  both  gold  and  silver  in  1873, 
was  the  monetary  demand — the  demand  for  them  to  be  used 
as  media  of  exchange  in  the  growing  commerce  of  the  nations. 
If  this  main  element  in  demand  were  removed  without  con- 
temporaneous and  equal  failing  of  the  mines,  the  value  must 
fall  by  the  inevitable  working  of  the  law  of  demand  and  sup- 
ply. Under  given  conditions  of  mining  output,  etc.,  the  ex- 
change value  of  a  metal  used  as  money  will  have  a  tremendous 
fall  if  it  ceases  to  be  used  as  money. 

The  exchange  value  of  gold,  thru  which  it  measures  values 
and  performs  the  functions  of  money,  is,  therefore,  not  in- 
herent or  intrinsic  at  all,  but  is  a  consequence  of  its  use  as 
money,  its  receivability  in  exchanges  and  settlements,  together 
with  the  limitation  of  its  volume  by  natural  or  artificial 
causes.  Anything  that  by  law  or  custom  has  equivalent  re- 
ceivability, and  whose  volume  is  similarly  limited  by  nature 
or  by  man,  will  have  the  same  value  for  monetary  purposes. 
Men  do  not,  as  a  rule,  take  gold  in  commerce  because  of  any 
use  they  have  for  the  gold  as  such,  but  simply  because  they 
know  they  can  pay  their  debts  and  taxes  with  it,  and  obtain 
for  it  food,  clothes,  shelter,  pictures,  books,  transportation, 
education,  labor — any  commodity  or  service  in  the  market. 
Anything  else  that  will  do  these  things  will  be  taken  by  mer- 
chants, manufacturers,  laborers,  etc.,  just  as  eagerly  as  gold 
(perhaps  more  eagerly  if  more  convenient  to  carry,  keep  and 
send),  and  anything  will  do  these  things  if  it  is  portable, 
durable  and  hard  to  counterfeit,  limited  in  volume  and  made 
a  full  legal  tender  for  all  debts  and  dues  public  and  private. 
Even  counterfeit  dollars,  metal  or  paper,  circulate  as  well  as 


THE   BEST   MONEY.  91 

gold  dollars  so  long  as  people  do  not  know  they  are  counter- 
feits; so  long  as  the  people  think  they  have  a  right  to  circulate, 
and  therefore  possess  the  quality  of  general  receivability, 
they  will  buy  as  much  as  gold.  A  genuine  dollar  that  has 
the  right  to  circulate  possesses  permanently  the  quality  that  a 
counterfeit  possesses  while  it  is  masquerading  as  genuine 
money,  and  the  people  are  ignorant  of  its  lawless  character. 

(8)  History  and  experience  in  our  own  time  abundantly  con- 
firm the  statements  just  made.  In  the  first  chapter  we  have 
seen  that  the  financial  history  of  England,  France,  Austria,  the 
United  States,  Venice  and  Brazil  shows  many  instances  of  the 
maintenance  of  the  value  of  money  without  metallic  redemp- 
tion or  basis,  the  independent  paper  or  bank  currency  being 
kept  at  par  or  even  above  par  with  gold,  not  by  promising 
to  pay  gold  for  it,  not  by  promising  to  pay  anything  for  it, 
but  by  promising  that  it  should  be  received,  and  by  limiting 
its  volume — the  two  elements  which  must  exist  in  the  case 
not  only  of  paper  but  of  gold,  or  silver,  or  anything  else  that 
is  to  serve  as  money. 

In  1873  the  Netherlands  rejected  silver  at  their  mints,  and 
also  refused  for  two  years  to  coin  gold.  During  that  time 
their  exchanges  increased  till  the  money  volume  became  so 
limited  relative  to  the  demand  that  the  whole  coinage  went 
to  a  premium  above  bullion;  the  coins  would  buy  much  more 
metal  than  they  contained.  "The  gold  necessary  to  make 
9|  florins  would  buy  silver  enough  to  make  11  silver  florins, 
yet  11  silver  coined  florins  would  buy  gold  bullion  enough  to 
make  about  12  gold  florins."  That  is,  a  silver  coined  florin 
would  buy  about  9  per  cent,  more  gold  than  was  in  a  gold 
florin,  and  would  buy  as  much  silver  as  was  contained  in 
1.4  silver  florins.  (Hon.  Henry  Winn,  Faneuil  Hall  Address, 
October  7,  1891,  p.  10,  and  Amer.  Mag.  of  Civics,  December, 
1895,  p.  580.)  Our  own  silver  dollar  will  at  present  buy 
silver  bullion  enough  to  make  nearly  three  silver  dollars.  The 
nickel  with  which  we  pay  street  railway  fares  will  buy  enough 
of  the  metal  on  which  the  coin  is  stamped,  enough  "nickel," 
to  make  6  or  8  nickels — the  metal  in  the  coin  is  worth  less 
than  a  cent,  yet  the  coin  passes  for  5  cents  gold  value,  and 
neither  it  nor  the  silver  dollar  is  redeemable  in  gold. 


92  PHILOSOPHY  OF  MONEY. 

The  city  of  St.  Joseph,  Mo.,  in  recent  years  has  used  an 
independent  paper  currency  for  local  purposes  which  was  re- 
ceivable for  taxes,  and  being  limited  in  volume  kept  its  value 
perfectly.  Many  of  our  counties  have  done  and  are  doing 
the  same  thing. 

Persons  who  have  not  studied  the  subject  or  thought  much 
of  it,  on  hearing  about  independent  paper,  are  apt  to  declare 
that,  history  or  no  history,  it  is  perfectly  clear  to  them  that 
the  Government  cannot  create  value,  and  that  paper  without 
gold  or  silver  behind  it  must  be  worthless.  They  fail  to  recog- 
nize that  the  paper  has  the  whole  field  of  service  and  com- 
modities behind  it,  and  that  they  are  making  a  pun  on  the 
word  value.  Suppose  the  Government  -cannot,  by  stamping 
paper,  give  it  the  intrinsic  value  possessed  by  gold;  it  can 
give  the  same  exchange  value,  and  it  is  the  exchange  value 
that  makes  gold  money. 

The  Government  can  give  even  intrinsic  value  of  a  cer- 
tain kind  to  practically  worthless  paper  by  stamping  it  and 
limiting  the  number  of  pieces;  men  will  pay  far  more  than  the 
legal-tender  value  of  such  pieces  in  order  to  possess  them  as 
curiosities  or  art  treasures.  For  example,  rare  postage  stamps, 
Columbia  coins,  old  currency,  etc. 

It  is  clearly  absurd  to  say  that  the  Government  cannot  give 
value  to  paper.  An  individual  can  do  it,  why  not  a  nation? 
A  deed  has  value,  and  a  note,  and  a  bit  of  manuscript.  Tenny- 
son could  make  a  sheet  of  paper  worth  $1,000  by  writing  a 
few  verses  upon  it.  A  postage  stamp  has  value,  and  is  just 
as  good  as  gold  or  silver  all  over  this  country, '  altho  it  is  "ir- 
redeemable" in  coin — redeemable  in  service  only.  Anything 
that  is  useful  has  value.  The  difference  between  gold  money 
and  paper  money  is  not  that  gold  has  value  and  paper  has 
none,  but  that  the  gold  money  has  a  value  aside  from  its 
character  as  money.  It  has  another  utility  and  therefore  an- 
other source  of  value,  while  paper  in  general  has  only  value 
as  money,  because  it  has  only  that  one  utility  (or  rather  its 
other  utilities  are  insignificant  in  comparison  with  its  money 
utility  bulk  for  bulk).  .But  in  that  utility  it  is  as  useful  as 
gold,  and  therefore  has  the  same  value  for  money  as  gold,  and 
frequently  more. 


THE   BEST   MONEY.  93 

It  will  not  do  to  point  to  the  French  assignats,  the  Conti- 
nental money,  and  the  Confederate  script,  and  conclude  that 
paper  money  will  not  keep  its  value.  They  lost  value  because 
of  the  relaxation  of  limitation  on  their  volume;  and  exper- 
ienced extinction  by  the  failure  of  their  legal-tender  quality 
thru  withdrawal,  or  the  downfall  of  the  Governments  that 
established  them.  No  number  of  failures  where  the  essential 
conditions  of  money,  legal  tender  and  limitation,  were  not  ful- 
filled, can  go  any  distance  at  all  toward  proving  that  intrinsic 
value  is  necessary,  especially  in  the  light,  not  merely  of  one, 
but  of  many  cases  where  independent,  inconvertible,  non-in- 
trinsic money  has  kept  its  value  by  the  fulfillment  of  the  said 
conditions. 

Nearly  all  economists,  and  all  the  great  economists  agree 
in  affirming  that  intrinsic  value  is  not  requisite  to  money. 
John  Stuart  Mill  says  (Polit.  Econ.,  Book  iii,  chap.  13,  §1): 

"After  experience  had  shown  that  pieces  of  paper,  of  no 
intrinsic  value,  by  merely  bearing  upon  them  the  written 
profession  of  being  equivalent  to  a  certain  number  of  francs, 
dollars  or  pounds,  could  be  made  to  circulate  as  such,  and  to 
produce  all  the  benefit  to  the  issuers  which  could  have  been 
produced  by  the  coins  they  purported  to  represent;  govern- 
ments determined  to  try  whether  they  could  not  make  a  piece 
of  paper  issued  by  them  pass  for  a  pound,  by  merely  calling 
it  a  pound,  and  consenting  to  receive  it  in  payment  of  the 
taxes.  And  such  is  the  influence  of  almost  all  established 
governments,  that  they  have  generally  succeeded  in  attaining 
this  object:  I  believe  I  might  say  they  have  always  succeeded 
for  a  time,  and  the  power  has  only  been  lost  to  them  after 
they  had  compromised  it  by  the  most  flagrant  abuse." 

Eicardo  and  our  own  Francis  Walker,  two  of  the  greatest 
economists  that  have  ever  lived,  give  special  emphasis  to  the 
case  of  coins  which  have  lost  much  of  their  intrinsic  value 
by  abrasion  or  clipping  or  sweating,  or  by  the  original  ab- 
straction of  a  certain  portion  of  the  metal  at  the  mint,  to  cover 
expenses  of  coinage  or  for  the  profit  of  the  Sovereign,  and 
both  Bicardo  and  Walker  affirm  that  "in  no  case  will  depre- 
ciation (of  money  value)  result  unless  the  coin  be  supplied 


PHILOSOPHY  OF  HONEY. 

(Walker,  Money,  p.  196;  Ricardo,  Polit.  Econ. 
Discussion  of  Seigniorage,  and  Reply  to  Bosanquet,  pp.  95-6.) 
Ricardo  says:  "However  debased  a  coinage  may  become,  it 
will  preserve  its  mint  value;  that  is  to  say,  it  will  pass  in  cir- 
culation for  the  intrinsic  value  of  the  bullion  which  it  ought 
to  contain,  provided  it  be  not  in  too  great  abundance." 

Many  times  Sovereigns  have  debased  the  coin  of  the  realm 
for  their  private  gain,  abstracting  a  part  of  the  gold  or  silver, 
and  the  coin  has  circulated  just  the  same  as  before.  King 
John  of  France  was  especially  noted  for  this.  But  the  idea 
has  not  been  confined  to  crowned  heads.  The  merchants  of 
New  York  stated  to  Lord  Cornbury  that 

"The  people  of  Boston  publicly  and  avowedly  have  prac- 
ticed to  clip  and  file  all  the  small  current  money  along  the 
continent,  to  25  per  cent,  loss,  which  practice  and  the  unlawful 
profit  coming  thereby,  did  encourage  enough  to  make  it  their 
business  to  carry  it  thither  and  return  it  again  to  us  and  our 
neighbors,  where  it  passed  for  the  same  value  as  formerly." 
(Documentary  History  of  New  York.) 

In  his  "Report  on  the  Mint,"  Alexander  Hamilton  speaks 
of  "the  new  dollar"  as  being  5  per  cent,  less  valuable  intrin- 
sically than  the  old  dollar,  and  yet  circulating  together  with 
the  old  at  a  par.  Our  present  silver  dollar  presents  a  seign- 
iorage of  65  per  cent.  Gresham's  law  that  inferior  money 
will  drive  out  and  replace  the  superior  only  applies  where 
there  is  an  excess  of  money  above  the  needs  of  the  community. 
If  sufficiently  limited  in  quantity,  both  will  circulate  at  or 
even -above  par  in  bullion.  (See  Walker,  Money,  p,  194;  Ri- 
cardo's  reply  to  Bosanquet,  p.  95;  Case  of  the  Netherlands 
above,  etc.) 

General  Walker  says  (Money,  p.  277): 

"Several  expressions  of  Mr.  Ricardo  have  already  been 
quoted  to  the  effect  that  a  bank-note  may  be  regarded  as  a 
coin  upon  which  the  seigniorage  is  enormous,  extending  to 
its  whole  nominal  amount.  While  some  exception  might 
possibly  be  taken  to  this  statement  regarding  a  bank  note  (on 
account  of  the  bank  reserves  which  may  be  regarded  as  en* 
tering  into  the  cost  of  maintaining  the  notes),  there  can  be 


THE    BEST    MONEY.  95 

none  to  its  application  to  independent  govermnment  paper. 
We  said  that,  by  Mr.  Ricardo's  reasoning,  a  seigniorage  of 
10  per  cent.,  or  even  of  50  per  cent.,  on  coin  would  not  alter 
the  purchasing  power  of  each  piece,  provided  only  the  pieces 
were  not  supplied  in  excess  of  the  amount  of  money  of  full 
value  which  would  circulate  as  the  community's  distributive 
share  of  the  world's  stock  of  money. 

"No  more,  if  we  suppose  the  seigniorage  to  be  carried  out 
to  100  per  cent.,  and  instead  of  debased  coin,  pieces  of  paper 
to  be  issued,  costing  so  little  in  their  production  that,  for 
purposes  of  economical  reasoning,  we  may  say  they  cost 
nothing,  would  the  purchasing  power  of  each  piece  be  dimin- 
ished provided  the  pieces  were  not  issued  in  excess.  Upon  this 
point  there  is  substantial  unity  among  economists." 

Pages  288  et  seq.  by  a  careful  analysis  of  the  facts  and  prin- 
ciples of  exchange  Walker  shows  that  intrinsic  value  is  not 
necessary  to  money.  On  page  297  he  quotes  Wilson  as  say- 
ing that  "TKe  gold  is  no  more  essential  to  the  guinea  than 
the  brass  or  ivory  of  the  ruler  is  to  its  inches" 

In  his  Political  Economy,  §213,  General  Walker  (tho 
favoring  bimetallism  and  not  independent  paper)  says : 

"It  is  undoubtedly  true,  as  Prof.  Bonamy  Price  asserts, 
that  'experience  has  proved  that  it  (paper  money)  need  not 
of  necessity  suffer  any  depreciation  of  value.'  "  (Principles  of 
Currency,  Price,  p.  156.) 

General  Walker  continues:  "On  a  point  so  vital  it  may  be 
well  to  add  authority  to  reason,  especially  as  current  American 
literature  misrepresents  the  real  purport  of  economic  opinion 
on  this  subject." 

"Mr.  Thomas  Tooke,  the  most  eminent  economic  statistician 
of  the  world,  explicitly  and  repeatedly  states  that  depreciation 
is  not  a  necessary  consequence  of  inconvertibilty. 

"Mr.  James  Wilson,  founder  of  the  London  Economist ,  and 
a  statesman  and  financier  of  wide  experience,  declares  that 
if  the  amount  of  inconvertible  paper  be  properly  regulated, 
' there  is  no  reason  whatever  why  such  notes  should  suffer  de- 
preciation.' "  (Capital,  Currency  and  Banking,  p.  42.) 

M.  Courcelle-Seneuil,  an  eminent  French  writer  on  finance, 


96  NATIONAL  MONEY. 

speaking  of  inconvertible  paper  says:  ."The  value  of  such 
money,  resulting  solely  from  its  use,  is  limited  by  that  use. 
If  the  issues  are  moderate,  paper  money  will  be  able  to  have 
the  same  value  as  metallic  money."  (Operations  de  Banque, 
p.  370.) 

I  have  made  use  of  three  names  of  the  first  rank  in  the 
economics  of  finance.  Let  me  now  quote  once  more  from 
"the  most  illustrious  writer  known  to  monetary  science." 

"The  whole  charge  for  paper  money,"  says  Mr.  Bicardo, 
in  his  Political  Economy,  "may  be  considered  as  seigniorage. 
Tho  it  has  no  intrinsic  value,  yet  by  limiting  its  quantity 
its  value  in  exchange  is  as  great  as  an  equal  denomination 
of  coin,  or  of  bullion  in  that  coin.  It  is  not  necessary  that 
paper  money  should  be  payable  in  specie  to  secure  its  value; 
it  is  only  necessary  that  its  quantity  should  be  regulated." 

Wm.  G.  Sumner,  Yale  Professor  of  Political  and  Social 
Science,  in  his  "History  of  American  Currency,"  p.  249, 
quotes  the  report  of  the  English  Bullion  Committee  to  the 
effect  that  "The  value  of  an  inconvertible  currency  depends 
on  its  amount  relatively  to  the  needs  of  the  country  for  a  cir- 
culating medium." 

And  Professor  Sumner  declares  that  "The  doctrines  of  the 
Bullion  Report  have  been  tested  by  experience  of  their  oppo- 
sites  and  of  themselves,  and  they  are  no  longer  disputable. 
They  are  not  matters  of  opinion  or  theory,  but  of  demon- 
stration. They  are  ratified  and  established  as  the  basis  of 
finance." 

THE   ONLY   ESSENTIAL   ATTRIBUTES 

are  general  receivability,8  and  limitation  of  volume  either  by 
nature  or  man.  Indeed,  since  general  receivability  in  ex- 
change cannot  exist  in  respect  to  any  article  in  the  absence  of 
limitation  upon  the  quantity  of  it  in  circulation,  we  may  con- 


(9)  "It  is  the  disposition  or  the  Indisposition  of  the  great  majority  of 
the  community  to  receive  it  in  payment  which  settles  the  question  whether 
a  particular  commodity  shall  become  money  or  not.  The  willingness  of  the 
mass  of  the  people  to  receive  one  article  rather  than  others  in  payment  for 
whatever  they  have  to  sell,  furnishes  the  prime,  the  one  essential  condition 
of  a  true  money."  (Walker,  Money,  pp.  24-5.)  In  primitive  societies  the 
willingness  generally  arises  by  the  slow  growth  of  usage.  In  civilized 
societies  the  willingness  arises  by  definite  act  of  the  Government,  establish- 
ing the  legal  tender  and  maintaining  it  by  enforcement  in  the  courts,  and 
by  reception  for  public  dues. 


THE    BEST   MONEY.  97 

sider  receivability  the  sole  essential  test.  An  article  may  be 
limited  without  being  generally  receivable  in  exchange,  but 
it  cannot  be  generally  receivable  in  exchange  unless  it  is 
limited.  If  it  comes  to  be  generally  receivable  and  should 
afterwards  become  absolutely  unlimited  it  will  cease  to  be 
receivable.  If  alchemy  should  be  so  wonderfully  successful 
that  mountains  of  dirt  could  be  turned  into  gold  by  a  wave 
of  the  hand,  people  would  not  use  gold  as  a  medium  of  ex- 
change any  more  than  they  would  use  mud  now.  They  might 
use  stamped  gold,  however,  because  the  quantity  of  that  could 
easily  be  limited.  Receivability  in  exchange  implies  limita- 
tion, so  that  receivability  covers  both  essentials  and  may  be 
taken  as  the  index  of  both. 

Anything  that  the  people  are  willing  to  take  in  exchange 
for  commodities  and  services  and  in  payment  of  debts,  so  that 
the  taker  knows  he  can  in  his  turn  use  the  same  thing  to  pay 
his  debts  and  to  purchase  commodities  and  services  from 
others,  will  answer  for  money.  It  may  be  very  poor  money; 
it  may  not  possess  the  other  attributes  needful  for  efficient 
performance  of  the  various  functions  of  money;  but  it  can 
act  as  a  medium  of  exchange  and.  roughly  perform  all  four 
resulting  functions.  In  other  words,  it  can  be  money,  if  by 
custom  or  law  the  mass  of  the  people  are  willing  to  receive 
it  in  payment.  We  have  found  communities  using  corn, 
leather,  cattle,  bullets,  notched  sticks,  iron,  copper,  gold,  sil- 
ver, paper,  bank  accounts,  and  they  would  use  any  reasonably 
convenient  thing  upon  which  the  Government  put  the  stamp 
of  legal  tender,  receiving  it  for  duties  and  taxes,  and  enforc- 
ing it  in  the  courts  as  a  valid  payment  of  debt  for  its  face 
value. 

STEADINESS    OF    VALUE. 

Next  in  importance  to  the  essential  quality  of  legal  tender 
or  general  receivability,  is  the  attribute  of  stable  value.  In- 
deed this  attribute,  tho  not  essential  to  the  existence  of  money, 
is  absolutely  essential  to  just  and  equitable  money.  By  steady 
money  I  mean  money  of  constant  purchasing  power;  money 
that  will  buy  the  same  average  quantity  of  commodities  and 
services  this  year  that  it  did  last  year;  money  that  gives  its 


98  PHILOSOPHY  OF  MONEY. 

possessor  the  same  command  over  the  world  of  exchange  at 
all  times.9  If  a  dollar  gives  its  owner  more  power  of  pur- 
chase than  formerly,  or  less  power,  it  has  changed  its  value. 
The  holder  can  get  more  or  less  for  it  than  before,  and  it  be- 
comes a  false  standard  of  payment,  and  a  dangerous  regu- 
lator of  industry  and  wealth  distribution.  If  prices  rise,  the 
dollar  has  less  purchasing  power  than  before;  if  prices  fall, 
the  dollar  has  more  purchasing  power  than  before.  In  order 
that  the  purchasing  power  of  the  dollar  may  remain  the  same, 
the  general  level  of  average  prices  must  neither  rise  nor  fall. 
A  steady  currency  is  one  that  maintains  general  prices  at  a 
constant  level.  A  money  that  does  not  accomplish  this  is  dan- 


(°)  It  is  sometimes  said  that  money  should  be  constant  with  labor— that 
a  dollar  should  always  buy  the  same  quantity  of  labor.  A  bill  has  even  been 
proposed  providing  for  the  issue  of  labor  dollars  by  the  Government  at  the 
rate  of  $2.50  per  day  of  8  hours  unskilled  labor,  the  Government  to  redeem 
the  money  on  demand  in  unskilled  labor  at  the  same  rates.  (Labor  as 
Money,  by  John  O.  Yeiser.)  It  has  been  suggested  that  labor  is  intrinsically 
the  most  proper  measure  of  value,  on  the  ground  that  one  day's  ordinary 
exertion  of  one  man  may  be  looked  upon  as  always  to  him  the  same  amount 
of  effort  or  sacrifice.  (See  Adam  Smith's  Wealth  of  Nations,  Bk.  1,  Chapter 
XI;  John  Stuart  Mill's  Polit.  Econ.,  Bk.  Hi.,  Chapter  XV.,  Sec.  2;  Ricardo's 
Works,  iii.;  D.  A.  Wells  "Recent  Economic  Changes,"  p.  225.)  While  labor 
for  labor,  and  even  day  for  day  is  a  very  admirable  principle  of  distribution 
which  in  a  co-operative  brotherhood  might  be  incorporated  in  the  money 
system  see  Our  Country's  Need,  Parsons,  p.  12  et  seq.),  yet  it  by  no  means 
follows  that  it  could  properly  become  the  monetary  basis  to-day.  (Ibid.,  and 
J.  Allen  Smith's  remarks  in  "Annals,  etc.,"  supra,  pp.  10-12.)  In  the  first 
place,  labor  day  for  day  does  not  truly  represent  exchange  values  nor  real 
values.  The  product  of  a  day's  work  by  a  savage  in  the  wilds  of  Africa,  or 
the  product  of  a  lazy  Italian  in  a  street  sweeping  gang  in  one  of  our  cities 
is  not  the  equivalent  for  the  product  of  a  day's  work  by  a  fine  mechanic  or 
an  efficient  farmer,  a  wise  statesman,  a  successful  inventor  or  an  eminent 
physician.  Moreover,  the  value  even  of  unskilled  labor  in  the  same  country  is 
continually  changing.  A  new  invention  may  double  the  product  of  a  day  of 
unskilled  labor.  It  is  absurd  to  say  that  the  double  product  is  worth  no 
more  than  the  former  product.  The  truth  is  that  the  day's  labor  is  twice  as 
valuable  as  before,  and  a  dollar  regulated  by  the  labor  unit,  maintaining  a 
constant  relation  with  the  day's  work,  would  double  in  value  under  such  cir- 
cumstances. So  long  as  the  competitive  system  continues,  and  values  rest 
upon  demand  and  supply,  a  labor  unit  can  hardly  represent  them  truly.  To 
regulate  money  by  a  labor  unit  under  competition  would  be  about  as  unjust 
as  the  present  method  of  nonregulation.  The  crelditor  who  lent  $1,000  or 
1,000  days  work  for  two  years  or  ten  years  might  at  the  end  of  that  time 
receive  1,000  days  work  of  vastly  increased  efficiency— days  whose  product 
might  be  double  the  product  of  the  days  he  lent.  In  other  words,  the  whole 
benefit  of  inventions  and  improvements  would  go  to  the  creditor  class, 
whereas  it  is  much  more  equitable  to  give  the  benefit  of  improvements  to  the 
burdened  debtor  class,  as  would  happen  were  the  dollar  kept  steady  with 
commodities.  If  debtors  have  to  pay  back  an  equivalent  in  commodities, 
then  every  improvement  in  production  makes  it  easier  for  them  to  pay 
their  debts,  and  does  this  without  the  slightest  injustice  to  the  creditors 
who  receive  the  same  number  of  dollars  of  the  same  purchasing  power  as 
those  they  lent;  i.  e.,  they  receive  back  the  same  command  over  the  world 
that  they  gave,  whereas  if  the  dollar  Is  regulated  by  the  labor  day,  each 
dollar  repaid  may  buy  two  or  three  times  as  much  wealth  as  the  dollar  lent. 
The  labor  dollar  means  the  fall  of  prices,  and  this,  under  competition, 
means  panic  and  depression.  If  the  dollar  is  kept  steady  with  the  labor  day, 
then  the  progress  of  invention  would  produce  a  series  of  Industrial  crises. 
When  a  day's  work  created  twice  as  much  product  as  formerly,  the  labor 
dollar  would  buy  twice  as  much;  that  is,  prices  would  have  fallen  to  one  half. 
Every  increase  in  the  productivity  of  labor  would  reduce  prices  in  proportion 
and  the  worst  variety  of  money  fluctuation  would  become  a  perpetuity. 


THE   BEST   MONEY,  99 

gerous  and  unjust.  Rising  prices  cheat  the  creditor  classes, 
and  award  to  labor  less  than  its  share  of  the  total  product. 
Falling  prices  cheat  debtors,  displace  labor  and  crush  indus- 
try into  the  dust.  Fluctuating  prices  produce  periodical 
panics.  The  only  way  to  give  the  creditor  just  what  he  lent, 
no  more,  no  less,  and  the  only  way  to  be  secure  against  panic 
and  depression  under  a  competitive  system  of  industry,  is  to 
keep  prices  level.  And  the  only  safe  or  honest  dollar  is  the 
dollar  that  will  do  this;  the  dollar  that  has  a  constant  and 
unchanging  purchasing  power;  that  will  buy  the  same  average 
amount  of  commodities  at  one  time  as  another.10 


(10)  Ricardo  says:  "All  writers  on  the  subject  of  money  have  agreed  that 
uniformity  in  the  value  of  the  circulating  medium  is  an  object  greatly  to  be 
desired.  A  currency  may  be  considered  as  perfect,  of  which  the  standard 
is  invariable,  which  always  conforms  to  that  standard,  and  in  the  use  of 
which  the  utmost  economy  is  practised.  *  *  During  the  late  discussions  on 
the  bullion  question,  it  was  most  justly  contended,  that  a  currency  to  be 
perfect  should  be  absolutely  invariable  in  value."  (Proposals  for  an  econ- 
omic and  secure  currency,  Sections  1  and  2.) 

Locke  says  that  money  "as  the  measure  of  commerce  ought  to  be  kept 
as  steady  and  invariable  as  may  be."  (Address  of  the  Master  of  the  English 
Mint  in  1816.) 

Jevons  holds:  "It  is  evidently  desirable  that  the  currency  should  not  be 
subject  to  fluctuations  of  value.  The  ratios  in  which  money  exchanges  for 
other  commodities  should  be  maintained  as  nearly  as  possible  invariable  on 
the  average."  (Money  and  the  Mechanism  of  Exchange,  p.  38.) 

Fonda  observes  that  "invariable  value  is  the  great  requirement  for  both 
the  functions:  'a  measure  of  value'  and  'a  standard  of  deferred  payments.'  " 
(Honest  Money,  p.  28.) 

Professor  Sherwood  remarks:  "The  ideal  that  we  want  so  far  as  price 
adjustment  is  concerned,  is  to  keep  prices  stable,  so  that  a  contract  which  is 
payable  in  one  year  from  now  can  be  paid  With  just  the  amount  of  com- 
modities which  will  then  represent  the  value  stated  in  the  contract  of  to-day. 
*  *  *  "That  is  what  we  want,  a  stability  of  prices  that  persists  from  one 
year  to  another  and  from  one  generation  to  another,  *  *  a  currency  which 
shall  expand  with  the  expansion  of  trade  and  commerce  and  development 
generally;  a  currency  which  shall  not  be  lagging  behind  the  commerce  and; 
development  of  the  country  and  hindering  that  development,  and  a  cur- 
rency which  shall  not,  by  being  too  rapidly  increased,  lead  to  excessive  specu- 
lation and  to  loss."  (History  and  Theory  of  Money,  p.  225.) 

J.  L.  Laughlin,  head  professor  of  political  economy  in  the  University  of 
Chicago,  says:  "The  highest  justice  is  rendered  by  the  state  when  it  exacts 
from  the  debtor  at  the  end  of  a  contract  the  same  purchasing  power  which 
the  creditor  gave  him  at  the  beginning  of  the  contract,  no  less,  no  more." 

"The  value  of  money  does  not  remain  the  same  for  any  length  of  time; 
and  the  precious  metals  cannot  serve  as  a  proper  measure  of  value  during  a 
long  term  of  years.  *  *  One  way  suggested  to  get  a  standard  of  payment 
for  long  contracts  is  by  a  device  known  as  the  multiple  standard.  A  long 
contract,  like  a  government  or  railway  bond,  ought  not  to  be  settled  by 
paying  back  the  amount  of  gold  or  silver  borrowed,  but  by  giving  the  lender 
a  sum  which  would  at  the  time  of  payment,  purchase  the  amount  of  com- 
modities for  which  the  money  loaned  could  have  been  exchanged  at  the 
time  that  it  passed  from  the  lender  to  the  borrower."  (History  of  Bi- 
Metallism  in  the  U.  S.,  pp.  70  to  76.) 

R.  B.  Chapman,  for  many  years  financial  secretary  to  the  government  of 
India,  remarked  to  the  British  Gold  and  Silver  Commission,  January  27,  1888: 
"To  my  apprehension,  a  steady  standard  of  value  is  absolutely  necessary  for 
the  purposes  of  commerce;  and  if  stability  of  standard  is  lost,  commerce  is 
paralyzed." 

President  E.  B.  Andrews  says  on  p.  135  of  his  "Institutes  of  Economics": 
'It  money)  is  a  more  perfect  measure  the  more  steady  and  invariable  it  Is 
as  to  its  own  value.  It  inevitably  shrinks  in  value  so  soon  and  about  in  pro- 
portion as  it  Is  multiplied  beyond  the  requirements  of  exchange." 


100  RATIONAL  MONEY. 

MOVEMENT    OF    THE    MONEY    VOLUME. 

The  value  of  money,  that  is,  the  general  level  of  prices,  can 
be  controlled  by  controlling  the  volume  of  the  currency. 
Prices  can  be  made  to  rise  by  increasing  the  volume  of  money 
in  circulation,  and  prices  can  be  made  to  fall  by  decreasing 
that  volume.11  Contrariwise,  a  fall  of  prices  otherwise  caused 


(n)  Some  writers  appear  to  think  that  the  volume  of  money  has  no  re- 
lation to  prices.  They  say  that  the  volume  of  money  may  increase  very  much 
without  affecting  prices,  while  on  the  other  hand  prices  may  rise  or  fall 
thru  the  movement  of  credit  without  any  change  in  the  volume  of  legal 
tender  money,  and  from  these  facts  they  conclude  that  the  money  volume 
has  no  controlling  influence  on  prices.  But  this  conclusion  is  not  justified 
by  the  premises.  A  given  movement  of  the  money  volume  may  not  ALWAYS 
cause  prices  to  move  any  more  than  gravitation  will  always  cause  a  body 
to  fall,  or  than  an  electric  current  will  always  cause  a  trolley  car  to  move. 
It  depends  upon  the  circumstances  of  the  case  HOW  MUCH  CURRENT  will  be 
required  before  the  car  will  move,  and  HOW  MUCH  CHANGE  in  the  money 
volume  must  be  made  in  order  to  cause  a  movement  of  prices.  If  population 
and  business  are  growing  as  fast  as  the  money  volume,  or  if  people  accustom 
themselves  to  using  more  money  in  doing  the  same  business,  paying  cash 
more  frequently  and  relying  on  credit  less,  there  may  be  a  large  accession 
to  the  money  volume  without  a  rise  of  prices. 

The  fact  that  a  shrinkage  of  credit  may  cause  a  fall  of  prices  without  any 
change  having  taken  place  in  the  volume  of  legal  tender  money  shows  that 
there  are  other  causes  of  fluctuating  prices  besides  a  movement  of  the  legal 
tender  money  volume,  but  does  not  prove  that  such  movement  is  not  also 
a  cause  of  price  change;  indeed  it  proves  the  opposite,  for  a  shrinkage  of 
credit  is  equivalent  to  a  contraction  of  the  currency — it  is  a  shrinkage  of  that 
which  in  a  certain  field  iias  acted  in  the  place  of  legal  tender  money,  and  its 
failure  enlarges  the  business  to  be  done  with  legal  tender  money,  which,  if 
the  volume  of  the  latter  remains  the  same,  amounts  to  a  contraction  rela- 
tively to  the  work  it  has  to  do.  As  a  matter  of  fact  the  volume  of  legal 
tender  in  circulation  is  apt  to  shrink  along  with  credit,  thru  the  hoarding  of 
money  in  time  of  danger. 

We  know  from  history  that  the  movement  of  money  does  cause  a  corres- 
ponding movement  of  prices.  The  influx  of  the  precious  metals  following  the 
discovery  of  Mexico  and  Peru  increased  the  volume  of  money  in  Europe 
500#,  and  prices  rose  to  a  degree  estimated  at  200  to  400  per  cent,  notwith- 
standing the  growth  of  population,  and  expansion  of  the  business  to  be  done 
with  money.  (See  Economic  Studies,  Vol.  I,  No.  1,  Amer.  Econ.  Assoc. ;  and 
Mulhall's  Hist,  of  Prices,  tables  in  the  back  of  the  book.)  So  in  the  middle 
of  this  century  the  discovery  of  gold  in  California  and  Australia  increased 
the  money  volume  and  lifted  prices  very  materially.  On  the  other  hand 
the  contracton  of  the  currency  in  England  after  the  Napoleonic  wars,  and 
in  this  country  after  the  Rebellion,  produced  a  serious  fall  of  prices,  as  we 
have  seen. 

It  is  sometimes  said  that  credit  will  expand  to  take  the  place  of  money, 
so  that  a  decrease  of  the  currency  does  not  necessarily  affect  prices.  This 
may  be  so  in  some  cases,  but  as  a  rule  it  is,  as  President  Walker  remarks, 
"a  question  whether  the  operations  of  credit  are  not  less  active,  rather  than 
more  active,  when  contraction  of  the  currency  is  going  on  than  when  the 
currency  is  undergoing  a  moderately  progressive  increase."  (Economic 
Studies,  Vol.  i.,  No.  1,  pages  44-5.)  Contraction  depresses  business,  and  men 
are  less  willing  to  give  credit,  more  insistent  on  cash,  when  trade  is  bad  and 
danger  is  ahead,  than  when  business  is  brisk  and  the  sea  is  smooth.  Walker, 
Price  and  other  leading  economists  declare  that  the  credit  system  may 
modify  but  does  not  destroy  the  relation  between  currency  volume  and  price, 
there  being  a  large  field  of  exchange  in  which  cash  is  required. 

There  is  no  precise  quantitative  relation  between  money  movement  and 
price  movement  because  of  the  interference  of  other  forces;  neither  is  every 
price  movement  due  to  money  movement.  The  truth  is  simply  that  a  SUFFI- 
CIENT movement  of  the  money  volume  will  cause  a  movement  of  prices,  and 
that  when  a  price  change  is  produced  by  another  cause  a  SUFFICIENT  counter 
movement  of  the  money  volume  will  cancel  the  change.  A  sufficient  upward 
movement  would  be  one  large  enough  to  overcome  opposing  resistances,  like 
shrinkage  of  credits,  etc.,  and  saturate  business  with  cash  up  to  the  point 
people  care  to  use  it,  and  introduce  an  excess  of  currency  beyond  this  point 
of  saturation.  That  excess  would  move  prices.  A  sufficient  downward  move- 
ment would  be  one  not  met  by  increase  of  credit  or  other  substitute,  and 
not  accompanied  by  a  corresponding  shrinkage  of  business. 


THE    BEST   MONEY.  101 

may  be  checked  and  expunged  by  an  increase  in  circulation, 
and  a  rise  of  prices  can  be  overcome  by  contraction  of  the  cur- 
rency. With  sufficient  foresight  a  threatened  rise  or  fall  of 
prices  could  be  prevented  by  a  movement  of  the  money  vol- 
ume contemporaneous  with  the  action  of  the  cause  threaten- 
ing to  produce  the  rise  or  fall. 

Under  a  strong  and  stable  government  able  to  enforce  its 
legal-tender  laws,  the  most  important  monetary  fact  is  the 
movement  of  the  volume  of  the  currency;  control  of  this 
movement  means  control  of  prices,  and  the  control  of  prices 
means  the  power  to  increase  or  diminish  the  weight  of  public 


Attention  is  sometimes  directed  to  per  capita  circulation  as  a  matter  of 
Importance.  But  wit  bin  wide  limits  it  is  a  matter  of  no  consequence. 
Nations  have  adjusted  themselves  successfully  to  $3  or  $4  per  capita  and  to 
$35  or  $40.  But  the  MOVEMENT  from  one  per  capita  to  another,  especially  if 
it  be  from  a  large  per  capita  to  a  small  one,  while  the  business  to  be  done 
with  money  is  all  the  time  increasing,  may  be  a  matter  of  the  most  vital 
moment. 

The  conclusion  that  the  money  volume  has  a  determining  Influence  upon 
prices  is  simply  one  application  of  the  law  of  supply  and  demand,  and  Is 
affirmed  by  all  the  leading  economists. 

Professor  Alfred  Marshall,  the  highest  living  English  authority  In  political 
economy,  says:  "I  accept  the  common  doctrine  that  prices  generally  rise, 
other  things  being  equal,  in  proportion  to  the  volume  of  money.  *  *  I 
include  paper  money."  (Testimony  before  the  Herschell  Commission,  No. 
9629-32.) 

Pres.  F.  A.  Walker,  the  highest  authority  on  this  side  of  the  water  upon 
the  question  of  nuance,  writes  (Sec.  218,  Polit.  Econ.):  "Mr.  Ricardo  has 
rightly  said  that,  by  limiting  the  supply,  any  degree  of  value  can  be  given 
to  the  money  of  a  country*  be  it  of  gold  and  silver,  or  of  paper;" — giving  us 
in  a  single  sentence  his  own  conclusion  and  that  of  KIcardo,  whom  he  calls 
"the  most  illustrious  writer  known  to  monetary  science." 

Pres.  Walker  wrote  very  strongly  on  this  subject  in  his  "Relation  of 
Changes  in  t.he  Volume  of  the  Currency  to  Prosperity."  (Economic  Studies, 
Vol.  I.,  No.  1,  April,  1896,  Amer.  Econom.  Assoc.) 

Professor  Sumner  (Hist.  Amer.  Currency,  p.  221)  speaking  of  irredeem- 
able paper,  says:  "The  whole  story  which  precedes,  goes  to  show  that  the 
value  of  a  paper  currency  depends  on  its  amount.  At  the  time  of  issue,  or 
during  a  war  in  which  the  issuer  is  engaged,  it  depends  in  some  degree  on 
his  credit;  but  when  it  settles  down  in  peace  as  the  normal  medium  of 
exchange,  its  value  conies  to  depend  purely  on  Its  amount.  This  amount  of 
course  is  relative  to  the  requirements  of  the  country  for  the  purpose  of 
performing  its  exchanges." 

David  Hume  says  in  his  Essay  on  Money:  "It  is  the  proportion  between 
the  circulating  money  and  the  commodities  in  the  market  that  determines 
prices." 

John  Stuart  Mill  says  (Polit.  Econ.  iii.,  8,  Sees.  2,  3,;  and  Hi.,  13,  Sec.  1.): 
"The  value  or  purchasing  power  of  money  depends  in  the  first  instance  on 
demand  and  supply.  *  *  In  point  of  fact,  money  is  bought  and  sold  like 
other  things,  whenever  other  things  are  bought  and  sold  for  money. 
Whoever  sells  corn,  or  tallow,  or  cotton  buys  money.  Whoever  buys 
bread,  or  wine  or  clothes,  sells  money  to  the  dealer  in  those  articles.  *  *  If 
there  were  less  money  in  circulation  in  the  community,  and  the  same 
amount  of  goods  to  be  sold,  less  money  would  be  given  for  them,  and  they 
would  be  sold  at  lower  prices.  *  *  That  an  increase  of  the  quantity  of 
money  raises  prices,  and  a  diminution  lowers  them,  is  the  most  elementary 
proposition  in  the  theory  of  currency.  *  *  The  Immediate  agency  in  de- 
termining the  value  of  money  is  its  quantity.  If  the  quantity,  instead  of 
depending  on  the  ordinary  motives  of  profit  and  loss,  could  be  arbitrarily 
fixed  by  authority,  the  value  would  depend  on  the  fiat  of  that  authority.  The 
quantity  of  a  paper  eunvney  not  convertible  into  the  metals  at  the  option  of 
the  holder  can  be  arbitrarily  fixed,  especially  if  the  issuer  is  the  soverign 
power  of  the  state.  Wherefore  the  value  of  such  a  currency  is  entirely 
within  the  control  of  the  government. 

(See  the  closing  paragraphs  of  the  preceeding  section  on  "Intrinsic 
Value.") 


102  PHILOSOPHY  OF  MONEY. 

and  private  debts,  to  govern  the  distribution  of  wealth,  to 
command  prosperity  or  panic.  A  matter  of  such  moment 
should  not  be  left  to  chance  or  private  manipulation.  A 
money  of  elastic  volume,  carefully  regulated  in  the  public  in- 
terest, is  essential  to  prevent  oppression  and  gambling,  to 
maintain  a  constant  average  of  general  prices,  keep  the  value 
of  money  steady,  and  make  the  dollar  a  perfect  medium  of 
exchange,  a  reliable  measure  and  means  of  storing  value,  an 
honest  standard  of  deferred  payments  doing  injustice  neither 
to  debtor  or  creditor,  and  a  safe  regulator  of  industry  and  dis- 
tributor of  wealth. 

WHAT   MONEY   SHOULD   BE    ADOPTED? 

There  are  few  if  any  more  important  questions  before  the 
American  people  to-day.  The  Gold  Standard,  the  Bimetallic 
Standard  and  the  Multiple  Standard  are  the  systems  chiefly 
spoken  of,  and  the  only  ones  that  have  sufficient  support  in 
reason  to  make  it  worth  while  to  consider  them.12  The  gold 
standard  makes  the  dollar  conform  to  the  value  of  a  given 
weight  of  gold.  The  bimetallic  standard  subjects  the  dollar 
to  the  controlling  influence  of  gold  and  silver,  giving  it  some- 
times the  value  of  one  metal,  and  sometimes  of  the  other,  such 
value  being  always  limited  however  by  the  monetary  poten- 
tiality of  the  other  metal,  and  amounting,  if  long  periods  are 
considered,  to  the  average  value  of  the  two  metals.  The  mul- 
tiple standard  requires  the  dollar  to  conform  itself  to  the 
average  value  of  commodities  in  general,  so  that  its  purchasing 
power  may  remain  constant.  The  average  value  of  commo- 
dities, and  the  increase  or  diminution  of  the  money  volume 
necessary  to  cancel  or  prevent  a  rise  or  fall  of  the  average 
level  of  prices,  are  determined  by  methods  that  will  be  de- 
scribed in  the  next  chapter. 

It  is  clear  from  the  discussion  preceding  this  section  that 
steadiness  of  value  in  the  monetary  unit  is  of  the  very  highest 
importance  to  justice  and  prosperity,  and  necessary  to  the  due 
performance  of  the  functions  of  money.  And  it  is  equally 
clear  that  steadiness  of  value  cannot  be  attained  with  either 


(")  See  above  for  discussion  of  the  labor  standard. 


THE   BEST   MONEY. 

the  gold  or  the  bimetallic  standard.  Even  if  the  Government 
owned  all  the  mines  in  the  country,  it  could  not  stop  Wall 
Street  from  cornering  gold,  or  prevent  scheming  syndicates 
from  draining  the  treasury,  or  shut  out  the  perturbing  in- 
fluence of  foreign  markets,  mines  and  financial  politics,  In 
general,  bimetallism  is  superior  to  monometallism.  Two 
metals  are  better  than  one,  less  easily  cornered,  less  affected 
by  the  accidents  of  production,  less  liable  to  sudden  and  wide 
fluctuations  from  any  cause,  but  the  difference  is  slight  as  is 
clearly  shown  by  the  facts  platted  in  diagram  below.  As  a 
general  rule  it  is  evidently  better  to  base  the  money  unit  on 
two  commodities  than  on  one,  as  the  average  of  two  commo- 
dities will  be  likely  to  represent  all  commodities  or  general 
purchasing  power  more  nearly  i/han  either  one  of  the  two.13 

However  much  of  an  improvement  two  commodities  may 
be  over  one  as  a  basis  for  the  money  unit,  it  is  manifest  that 
two  are  not  so  good  as  100  or  200  or  500.  "We  cannot  rely  upon 
two  to  represent  all  so  fully  as  we  can  rely  upon  100  or  200 
or  500,  or  upon  the  all  itself. 

So  long  as  no  attempt  is  made  at  a  wise  public  control  of  the 
movement  of  the  money  volume  in  the  interest  of  justice 
and  industrial  well-being,  so  long  as  Congress  neglects  the 
duty  of  regulating  money  imposed  upon  it  by  the  Constitu- 
tion, so  long  as  the  volume  and  value  of  money  is  left  to 
nature  and  conspiracy  and  foreign  emergencies,  so  long  will 
gold  and  silver  be  rightly  used  instead  of  independent  paper; 
the  rude  regulation  of  Nature's  restrictions  on  production, 
with  all  the  perturbations  of  competition,  conspiracy,  etc.,  is 
better  than  no  regulation;  but  so  soon  as  the  necessity  of 
replacing  chance  and  private  manipulation  with  intelligent 
regulation  on  scientific  principles  for  the  public  benefit 
comes  to  be  understood,14  just  that  soon  does  it  become  clear 

(13)  This  likelihood  is  by  no  means  a  certainty.    Silver,  for  example,  might 
keep  prices  nearer  level  than   gold,   or  gold  and  silver  together;   the  white 
metal's  variations  from   the  general   average  of  all   commodities  being  less 
than  those  of  gold;  and  the  average  of  the  flustuations  of  gold  and  silver, 
tho  nearer  the  true  level  than  gold  alone,  is  not  so  near  as  silver.    It  is  very 
doubtful,  however,  if  this  would  continue  to  be  true  if  the  monetary  demand 
were  thrown  upon  silver.    The  case  would  be  clearer  with  cotton  and  leather, 
leather  varying  much  less  from  the  average  commodity  level  than  cotton. 
(See  diagrams  below.) 

(14)  This  is  the  vital  point  in  the  monetary  problem  of  the  day.    There 
must  be  intelligent  control  of  money  in  the  public  interest  in  order  to  stop 
panics,  do  justice  between  debtor  and  creditor,  and  regulate  the  distribution 


104:  RATIONAL  MONEY. 

that  gold  and  silver  must  be  abandoned  as  monetary  bases, 
and  reliance  placed  on  independent  paper  carefully  regulated 
in  volume  so  that  its  value  may  remain  constant,  represent- 
ing from  month  to  month  and  year  to  year  the  same  average 
amount  of  commodities  in  general,  retaining  the  same  power 
of  purchase  in  peace  or  war,  in  good  mining  or  bad,  and  rid- 
ding the  nation  of  the  pestilence  of  falling  prices.  Such  regu- 
lation is  hardly  possible  with  a  money  based  on  gold  and  silver, 
because  the  sources  of  supply  and  causes  of  variation  would  be 
in  large  part  beyond  the  control  of  the  Government.  No  one 
people  could  hope  to  stem  the  tide  of  the  world.  If  gold  and 
silver  appreciated  abroad  for  a  considerable  time  and  to  a  con- 
siderable degree,  we  would  simply  lose  all  our  gold  and  silver 
if  we  tried  to  keep  our  prices  steady  with  coin  and  con- 
vertible paper,15  and  be  compelled  at  last  to  rely  upon  inde- 
pendent paper.  Even  if  due  regulation  of  metallic  money, 
or  currency  based  on  metallic  money,  were  a  possibility,  it 
would  still  be  undesirable  not  merely  because  of  the  added 
difficulties  it  would  involve,  but  because  of  the  needless  ex- 
pense of  using  costly  materials  for  a  service  that  can  be  per- 
formed as  well  or  better  with  cheap  materials.  In  other 
words,  money  should  be  intelligently  regulated  anyway,  and 
if  it  is  intelligently  regulated,  independent  paper  is  preferable 
to  monometallism  or  bimetallism,  because  it  is  cheaper  and 
less  open,  to  disturbing  influences  beyond  the  control  of  the 
Government. 

We  have  said  that  bimetallism  is  but  little  better  than 
monometallism.  In  detailed  proof  of  this  we  present  the  fol- 
lowing diagram  from  Professor  Alfred  Marshall,  bringing  the 
lines  to  date  and  adding  the  Professor's  comments. 


of  wealth.  Men  favor  metallic  money  because  they  think  in  terms  of  present 
methods.  Gold  is  better  than  limitless  issues  of  paper;  little  regulation  is 
better  than  none,  bad  regulation  is  better  than  no  regulation,  but  good  and 
sufficient  regulation  is  better  than  either.  It  will  not  do  to  say  that  money 
cannot  be  wisely  regulated  in  the  interests  of  the  people.  It  has  been  done 
(See  Chap.  I)  and  can  be  done  with  great  perfection  and  certainty  by  methods 
developed  by  modern  economics.  (See  next  chapter.) 

(1B)  Convertible  paper  is  open  to  even  more  variations  than  metallic 
money  itself.  It  may  at  any  time  through  industrial  disturbance  or  other 
cause  be  called  upon  to  toe  the  mark  with  gold,  and  follow  wherever  it 
goes,  and  it  may  between  whiles  enjoy  little  excursions  of  its  own  away 
from  the  value  a  metallic  currency  would  have;  a  phenomenon  arising  from 
the  friction  or  inertia  usually  attending  convertibilitv  which  permits  an 
"over-issue"  of  the  "convertible"  notes.  (See  Walker  "Money,"  pp.  479- 
484.  Prof.  Sumner  Hist  Amer.  Currency  p.  186.) 


THE    B3ST   MONEY. 


105 


FROM  PROF  iiARSMAii      CONTEI-IP   REV    MAR   1387,    PAGE     361 

THE    SOLID  LINE    HEPRESENT5     THE  MOVEMENT    OF    GOLD  PRICES.    THE.    DOTTED    LINE, 
THE  MOVEMENT    OF    BIMETALLIC    PRICES 


I8EO  1830 


i860 


1670 


"The  dark  curve  shows  tlie  variations  of  the  index  number 
which  represents  the  average  prices  of  the  leading  wholesale 
commodities  during  the  last  hundred  years,  estimated  in  gold 
alune;  while  the  dotted  curve  shows  the  same  index  number 
estimated  in  terms  of  the  two  metals,  gold  and  silver  in  equal 
shares.  On  comparing  these,  'we  find  that  the  fluctuations 
shown  by  the  second  curve  are  not  very  much  less  than  those 
shown  by  the  first;  and,  what  is  of  even  more  significance,  that 
the  fluctuations  in  the  index  number  during  the  period  when 
the  gold  value  of  silver  was  nearly  stationary  are  greater  than 
they  have  been  since  1873,  when  its  value  has  been  much  dis- 
turbed."16 

"There  is  no  security  that  the  yield  of  the  silver  mines  will 
be  great  when  that  of  the  gold  mines  is  small;  history  shows 
that  the  probability  is  the  other  way,  in  the  ratio  of  3  to  2. 
The  production  of  gold  has  been  changing  in  the  opposite  di- 
rection to  that  of  silver  during  about  160  out  of  the  last  400 
years;  during  the  remaining  240,  the  two  productions  have 
been  either  increasing  together  or  diminishing  together."17 

The  truth  is  that  gold  and  silver  belong  to  the  same  class, 
and  are  much  more  likely  to  vibrate  together  than  two  com- 
modities of  a  more  different  nature.  If  we  are  to  confine  our- 


(16)  Prof.  Marshall,  Contemporary  Review,  Vol.  51,  Mar.,  1887,  p. 
(")  Ibid,  p.  359. 


106 


PHILOSOPHY  OF  MONEY. 


selves  to  two  commodities  it  would  be  better  to  choose  so  that 
both  would  not  belong  to  the  class  that  is  subject  to  the  law 
of  diminishing  return  nor  very  similar  in  other  respects,  so 
that  their  fluctuations  might  offset  each  other. 

The  following  diagram  from  MulhalFs  History  of  Prices 
shows  the  movement  of  money  from  1841  to  188 4.  The  solid 
line  represents  English  prices  and  the  dotted  line  World 
prices. 


PRICE  LEVELS  OF  THE  WORLD  AND  OFCREAT  BRITAIN. 

WORLD G.B. 

I84h50  51-3  51-657-8  60*  6V3  6W  6971  TM  75-7  78-80  M-Z  83'1 
I56  -  -  I56 

-15+ 


ISO  _ 


_  ISO 


_I40 


_I30 


_I20 


90  _ 


_90 


The  rise  and  fall  of  prices  since  1846  is  shown  in  the  fol- 
lowing tables.  Dr.  Sauerbeck  and  Dr.  Soetbeer  (two  of  the 
most  eminent  statisticians  in  Europe),  The  London  "Econo- 
mist," the  Report  of  the  Finance  Committee  of  the  United 
States  Senate,  52d  Congress,  on  "Wholesale  Prices,  Wages 
and  Transportation,"  commonly  known  as  the  "Aldrich  Re- 
port," and  "The  American,"  edited  by  the  distinguished  eco- 
nomic writer,  Wharton  Barker,  are  the  authorities.  Pal- 
grave's  table  is  a  recast  of  a  portion  of  the  Economist  figures, 


THE    P.KST    MONfcY.  107 

each  commodity  being  "weighted,"  i.  e.,  entered  in  the  esti- 
mate of  average  prices  according  to  its  importance  relatively 
to  the  other  commodities,  instead  of  entering  each  commodity 
as  the  equal  of  every  other,  as  is  the  case  in  most  of  the  tables, 
the  average  being  obtained  by  taking  the  sum  of  the  prices  of 
all  the  commodities  without  weighting,  and  dividing  by  the 
number  of  commodities. 

The  Economist  list  is  not  considered  wholly  satisfactory  be- 
cause the  number  of  commodities  is  small  (22),  and  4  of  them 
are  either  raw  cotton  or  cotton  manufactures,  which  rose  300 
or  400  per  cent,  during  the  war.  It  is  all  right  to  include 
erratic  elements  in  due  proportion — the  same  proportion  that 
occurs  in  the  total  of  commercial  products — but  4  skyrockets 
in  22  products  is  too  high  a  ratio. 

The  Aldrich  Report  bears  many  marks  of  careless  work18 
(perhaps  by  the  clerks  employed  to  handle  the  enormous  body 
of  data  obtained  by  the  committee),  and  for  the  "weighted'* 
column  only  the  relative  importance  of  the  various  groups 
of  articles  is  used,  so  that  altho  the  number  of  commodities  is 
large  (223),  the  results  are  not  considered  by  economists  to 
be  as  reliable  as  the  averages  of  Sauerbeck  and  Soetbeer.  The 
first  two  columns  of  the  Aldrich  table  give  the  actual  prices, 
paper  prices  during  the  war  and  until  1879,  then  gold  prices. 
The  last  two  columns  show  gold  prices  all  the  way  thru,  the 
paper  prices  of  1862  to  1879  being  reduced  to  terms  of  gold 
at  the  premium  then  existing.  The  prices  thus  obtained  do 
not  exactly  represent  the  course  that  a  continuous  gold  stand- 
ard would  have  taken  because  speculation  in  gold  widened  the 
distance  between  it  and  paper,  lifting  the  yellow  plaything, 
and  putting  gold  prices  during  and  after  the  war  below  the 
normal  gold  level  as  indicated  by  the  movement  of  price 
levels  in  other  countries  during  this  period.  In  the  first  and 
third  columns  of  the  Aldrich  table  we  have  the  relative  prices 


(18)  One  of  the  most  striking  illustrations  of  the  imperfect  methods  em- 
ployed in  the  Aldrich  Report  is  the  fact  that  in  obtaining  average  wages, 
the  wages  of  a  few  foremen  were  added  together  and  divided  by  the  number 
of  foremen  (4,  for  example)  to  get  the  average  pay  of  a  foreman  ($5  a  day, 
for  example).  Then  the  wages  of  perhaps  100  workmen  were  added  and 
divided  by  the  number  of  workmen,  giving  perhaps  $1.00  for  the  average. 
Finally,  the  foremen's  average  ($5)  and  the  workmen's  average  ($1)  were 
added  together  and  the  sum  ($6)  divided  by  2,  giving  $3  (in  this  example) 
for  the  average  wages  on  the  whole  of  the  data  concerned,  whereas  the 
true  average  would  be  $1.15, 


JOS 


3SATIOINAL  MONEY. 


calculated  as  a  simple  average  of  all  the  commodities.     In  the 
second  and  fourth  columns,  the  relative  price  resulting  from 
giving  each  commodity  its  due  weight  according  to  its  consump- 
tion.   Rent,  insurance,  charity,  etc.,  had  to  be  omitted.    The 
shorter  lists  used  in  calculating  the  tables  include  such  com- 
modities as  coffee,  sugar,  tea,  wheat,  corn,  oats,  cotton,  wool, 
silk,  flax,  indigo,  timber,  tallow,  leather,  copper,  iron,  lead, 
tin,  etc.    The  long  list  of  the  Aldrich  report  contains  8  groups 
of  commodities:  food,19  cloths  and  clothing,  fuel  and  lighting, 
metals  and  implements,  lumber  and  building  materials,  drugs 
and  chemicals,  house  furnishing  goods,  and  miscellaneous  arti- 
cles. A  number  of  items  are  considered  under  each  group.  The 
committee  ascertained  from  statistics  of  2,561  normal  families 
that  the  expenditure  for  food  is  41  per  cent,  of  the  total  expen- 
diture, clothing  15  per  cent.,  rent  15  per  cent.,  fuel  5  per  cent., 
light  1  per  cent., house  furnishing  2.5  per  cent.,  insurance  1.5 
per  cent.,  taxes  1.15  per  cent.,  tobacco  1  per  cent., intoxicants 
1.68  per  cent, amusements. 9 2  of  1  per  cent., religion. 9 2  of  1 
1.68  per  cent,  other  amusements  .92  of  1  per  cent,  religion 
.92  of  1  per  cent.,  charity  ^  of  1  per  cent,  books  and  news- 
papers 1  per  cent.,  illness  and  death  3.35  per  cent.,  other  pur- 
poses 15  per  cent.    Not  being  able  to  measure  the  changes  of 
rent,  insurance,  etc.,  the  committee  confined  its  table  of  prices 
and  averages  to  the  8  groups  above  named  which  represent 
68.6  per  cent  of  the  total  expenditure  of  the  average  family. 
In  using  the  tables  it  must  be  remembered  that  each  statis- 
tician arbitrarily  places  the  location  of  the  100  level;  he  may 
take  any  year  as  the  standard  and  call  its  index  number  100. 
The  index  numbers  of  the  other  years  will  then  differ  from 
100  in  the  same  ratio  that  their  prices  differ  from  prices  of 
the  standard  year. 

The  Sauerbeck  list  has  been  extended  from  1895  to  1897 
by  applying  the  percentages  of  fall  shown  by  the  American 
table,  which  has  been  used  in  extending  the  Economist  list 
from  1891  as  given  in  the  Aldrich  Report 

(")  To  show  the  character  of  the  groups  wo  give  the  main  elements  of  the 
first  group:  beans,  bread  (10  varieties,  including  Boston  crackers,  oyster 
"rackfrs,  shipbread,  etc.),  butter,  cheese,  coffee  (Kio)  eggs,  cod  salt,  mack- 
erel, (3  nos),  rve,  flour,  dried  apples,  raisins,  lard,  yellow  co™  %eraJ',b*clo,E' 
beef  (joints  ribs  (salt),  ham  (sugar  cured),  lamb,  mutton  pork,  fresh  milk, 
molasses  (New  Orleans  prime),  rice  (California  prime),  salt  (5  sorts),  nutmega, 
pepper,  corn  starch, 


THE   BEST   MONET. 


109 


TABLE  XIII. 


SAUEKBECK. 

1867-1877=100. 

Simple  Average. 

English  prices. 

45  commodities. 


1846 

89 

1847 

95 

1848 

....  78 

1849 

74 

1850 

77 

1851 

....   75 

1852 

....   78 

1853 

....   95 

1854 

102 

1855 

101 

1856 

101 

1857 

105 

1858 

91 

1859 

....  94 

1860 

99 

1861 

....   98 

1862 

101 

1863 

103 

1864 

105 

1865 

101 

1866 

102 

1867 

100 

1868 

99 

1869 

....  98 

1870 

96 

1871 

....  100 

1872 

....  109 

1873 

111 

1874 

102 

1875 

96 

1876 

95 

1877 

94 

1878 

....  87 

1879 

83 

1880 

88 

1881 

85 

1882 

84 

1883 

82 

1884 

76 

1885 

72 

1886 

69 

1887 

68 

1888 

....  70 

1889 

....  72 

1890 

72 

1891 

72 

1892 

68 

1893 

68 

1894 

63 

1895 

62 

1896 

60 

1897 

....  £9 

SOETBEER. 

1847-1850=100. 
Simple  Average. 
Hamburg  prices 
100  commodities,  and 
Eng.  export  prices 
14  commodities. 


ECONOMIST  LIST. 

1845-1850=100. 
Simple  Average. 

English  prices. 
22  commodities. 


1847.... 

1 

1 

to 

}-  100 

1850  

1851  

100.21 

1852.... 

101.69 

1853  

113.69 

1854  

121.25 

1855  

124.23 

1856  

123.27 

1857  

130.11 

1858  

113.52 

1859.... 

116.34 

I860.... 

120.98 

1861.... 

118.10 

1862  

122.65 

1863  

125.49 

1864  

129.28 

1865  

122.63 

1866  

125.85 

1867  

124.44 

1868.... 

121.99 

1869.... 

123.38 

1870.... 

122.87 

1871  

127.03 

1872.... 

135.62 

1873.... 

138.38 

1874.... 

136.20 

1875  

129.85 

1876  

128.33 

1877  

127.70 

1878  

120.60 

1879  

117.10 

1880  

121.89 

1881  

121.07 

1882  

122.14 

1883  

122.24 

1884.... 

114.25 

1885.... 

108.72 

1886.... 

103.99 

1887.... 

102.02 

1888.... 

102.04 

1889.... 

106.13 

1890.... 

108.13 

1891.... 

109.19 

1845.. 


to 


100 


1850..  J 

1851.... 

104 

1852.... 

93 

1853  

108 

1854  

122 

1855  

118 

1856  

123 

1857  

132 

1858  

119 

1859  

115 

I860.... 

121 

1861.... 

124 

1862  

131 

1863  

159 

1864  

172 

1865  

163 

1866  

162 

1867  

137 

1868.... 

122 

1869.... 

121 

1870.... 

122 

1871.... 

118 

1872.... 

129 

1873  

134 

1874  

131 

1875  

126 

1876  

123 

1877  

123 

1878.... 

115 

1879.... 

101 

1880.... 

115 

1881.... 

108 

1882.... 

111 

1883.... 

106 

1884.... 

101 

1885.... 

90 

1886  

92 

1887.... 

94 

1888.... 

101 

1889.... 

99 

1890.... 

102 

1891.... 

102 

1892  

97 

1893  

96 

1894  

89 

1895  

89 

1896  

89 

1897  

86 

1  10 


PHILOSOPHY  OF  MONEY. 


TABLE   XIV. 


PALGRAVE. 
1865-69=100. 


Economist  prices. 
22  commodities. 

Simple 

Weighted 

average 

.  average. 

1865  110.6 

107.5 

1866  lil.3 

110.6 

1867  98.0 

99.0 

1868  90.1 

93.5 

1869  90. 

89.2 

Average  100. 

100. 

1870....     91. 

90. 

1871....     90. 

93. 

1872....     97. 

100. 

1873....   102. 

104. 

1874....   100. 

108. 

1875....     95. 

97. 

1876....     93. 

99. 

1877....     94. 

100. 

1878....     87. 

95. 

1879....      76. 

82. 

1880....      87.- 

89. 

1881....      81. 

93. 

1882....      83. 

87. 

1883....      80. 

88. 

1884....     75. 

80. 

1885....     70. 

76. 

THE  AMERICAN,   OCT.   16,   1897. 

Jan.  1,  1891=100. 

Simple  average, 

100  commodities. 


1891 


1892 


1893 


1894 


1895 


1896 


1897 


Jan.  1  .... 

100. 

Apr.  1.... 

101.96 

July  1.... 

98.28 

Oct.  1.... 

94.71 

Jan.  1  

93.12 

Apr.  1  

92.87 

July  1.... 

92.85 

Oct.  1.... 

93.60 

Jan.  1.  ... 

98.42 

Apr.  1  

99.75 

July  1  

93.39 

Oct.   1  

91.43 

Jan.  1.  ... 

87.59 

Apr.  1  

84.70 

Julyl.... 

84.40 

Oct.   1  

82.81 

Jan.  1  

79.74 

Apr.  1.... 

82.59 

July  1  

86.05 

Oct.  1.... 

84.88 

Jan.  1  

85.29 

Apr.  1.... 

81.29 

July  1.... 

78.81 

Oct.   1.... 

78.34 

Jan.  1.  .  .  . 

79.95 

Apr.  1  

79.38 

July  1.... 

76.33 

Oct.   1  

82.88 

98.74 


95.6 


95.77 


84.87 


83.31 


j.    80.93 
j 


79.63 


THE   BEST   MONEY. 


Ill 


TABLE  XV. 


THE  ALDRICH  REPORT. 

1860=100. 

U.  S.  Prices,  223  Articles. 

Actual  Prices.  Gold  Prices. 

Simple        Weighted  Simple          Weighted 

Year.                       average.        average.  average.  average. 

1840  116.8                   97.7  116.8  97.7 

1841  115.8                   98.1  115.8  98.1 

1842  107.8                   90.1  107.8  90.1 

1843  101.5                   84.3  101.5  84.3 

1844  101.9                   85.0  101.9  85.0 

1845  102.8                   88.2  102.8  88.2 

1846  106.4                   95.2  106.4  95.2 

1847  106.5                   95.2  106.5  95.2 

1848 101.4                   88.3  101.4  88.3 

1849  98.7                   83.5  98.7  83.5 

1850  102.3        89.2  102.3  89.2 

1851  105.9        98.6  105.9  98.6 

1852  102.7        97.9  102.7  97.9 

1853  109.1  105.0  109.1  105.0 

1854  112.9  105.0  112.9  105.0 

1855  113.1  109.2  113.1  109.2 

1856  113.2  112.3  113.2  112.3 

1857  112.5  114.0  112.5  114.0 

1858  101.8  113.2  101.8  113.2 

1859  100.2  102.9  100.2  102.9 

1860  100.0  100.0  100.0  100.0 

1861  100.6  94.1  100.6  94.1 

1862  117.8  104.1  114.9  101.6 

1863  148.6  132.2  102.4  91.1 

1864  190.5  172.1  122.5  110.7 

1865  216.8  232.2  100.3  107.4 

1866  191.0  187.7  136.3  134.0 

1867  172.2  165.8  127.9  123.2 

1868  160.5  173.9  115.9  125.6 

1869  153.5  152.3  113.2  112.3 

1870  142.3  144.4  117.3  119.0 

1871  136.0  136.1  122.9  122.9 

1872  138.8  132.4  127.2  121.4 

1873  137.5  129.0  122.0  114.5 

1874  133.0  129.9  119.4  116.6 

1875  127.6  128.9  113.4  114.6 

1876  118.2  122.6  104.8  108.7 

1877  110.9  113.6  104.4  107.0 

1878  101.3  104.6  99.9  103.2 

1879  96.6        95.0  96.6  95.0 

1880  106.9  104.9  106.9  104.9 

1881  105.7  108.4  105.7  108.4 

1882  108.5  109.1  108.5  109.1 

1883  106.0  106.6  106.0  106.6 

1884  99.4  .  102.6  99.4  102.6 

1885  93.0        93.3  93.0  93.3_ 

1886  91.9        93.4  91.9  93.4~ 

1887  92.6        94.5  92.6  94.5 

1888  94.2        96.2  94.2  96.2 

1889  94.2        98.5  94.2  98.5 

1S90  92.3        93.7  92.3  93.7 

1891  92.2        94.4  92.2  94.4 


112 


RATIONAL  MONEY. 


The  ups  and  downs  of  prices  shown  in  these  tables  and  es- 
pecially the  long  descents  are  sufficiently  startling,  but  they 
soften  the  real  facts  because  they  show  only  the  averages 
for  each  year,  and  do  not  exhibit  the  maximum  or  minimum 
price  attained  during  the  year.  Here  is  a  very  suggestive 
table  from  p.  336  of  the  Aldrich  Report. 

TABLE  XVI. 

FLUCTUATION   OF   PRICES. 
1860-1869. 

Maximum.  Minimum. 

Year.         Price.  Year.        Price. 

United    States 1864             172.9  1861             98.2 

England   1864             144.8  1868             99.3 

Hamburg     1864             137.8  1861             99.3 

France    1864             128.6  1868             94.5 

1870-1879. 

Maximum. 
Year.         Price. 

United    States 1872  126.5 

England   1873  114.6 

Hamburg     1872  116.9 

France    1872  104.6 

1880-1891. 

Maximum.  Minimum. 

Year.        Price.  Year.        Price. 

United    States 1880             100.5  1886             80.4 

England     1880               92.2  1886             73.3 

Hamburg     1880               91.1  1886             74.8 

France    1880               79.2  1886             69.3 

1860-1891. 

Maximum. 
Year.         Price. 

United    States 1864  172.9 

England     1864  144.8 

Hamburg     1864  137.8 

France    1864  128.6  1886  69.3 


Minimum. 
Year.         Price. 

86.7 
80.7 
92.5 
76.4 


1879 

1879 

1878 
1879 


Minimum. 
Year.         Price. 
80.4 
73.3 

74.8 


1886 
1886 
1886 
1886 


What  would  we  think  of  a  measure  that  would  be  172 
inches  long  in  1864  and  then  shrink  to  80  inches  in  1886, 
and  to  60  inches  in  1897?  If  we  took  the  maximum  and  min- 
imum actual  prices  instead  of  gold  prices,  the  contrast  would 
be  greater  still,  a  contrast  of  280  to  60  in  round  numbers. 


THE   BEST   MONEY.  113 

What  would  we  think  of  a  yard  stick  that  would  expand  to 
more  than  four  times  its  former  length,  so  that  a  piece  of 
cloth  that  measured  a  yard  by  its  test  a  generation  ago  would 
measure  less  than  a  quarter  of  a  yard  to-day — only  8  inches 
at  the  lowest  point  this  year?  No  doubt  some  creditors  are 
willing  to  receive  4  yards  for  every  one  they  lent,  but  what 
is  the  effect  on  the  debtor? 

So  far  as  we  have  dealt  with  fluctuations  of  price.  Gold 
lias  been  deemed  the  standard  and  the  variations  in  the  price 
of  a  given  quantity  of  commodities  has  been  recorded.  Now 
lot  us  take  commodities  as  the  standard  and  record  the  varia- 
tions of  gold  from  the  commodity  base.  That  this  is  the  true 
method  is  clear  upon  plain  common  sense,  upon  scientific  prin- 
ciple and  upon  authority. 

The  object  of  commerce  is  not  to  get  gold.  In  999  out  of 
i\  thousand  sales  the  vendor  does  not  want  gold  or  silver.  The 
dollar  is  not  sought  by  him  for  the  sake  of  the  23.22  grains 
of  gold  in  it.  Most  of  the  dollars  he  gets  contain  no  grains  of 
gold  at  all,  but  are  made  of  paper.  He  does  not  think  of 
asking  for  gold,  and  would  deem  it  a  burden  if  he  were  re- 
quired to  take  large  payments  in  gold.  His  object  is  to  ex- 
change his  commodities  for  other  commodities,  and  he  takes 
money  because  it  is  a  convenient  means  of  making  that  ex- 
change. The  purpose  of  money  is  not  to  convey  a  certain 
weight  of  gold,  23  grains  to  the  dollar  or  any  other  number 
of  grains  to  the  dollar,  but  to  transfer  a  purchasing  power 
equal  to  that  of  the  goods  which  are  being  paid  for,  or  the 
loan  that  is  being  liquidated.  The  receiver  of  the  dollar  takes 
it  because  it  will  buy  the  means  of  life  and  happiness — com- 
modities in  the  broad  sense.  The  dollar  is  taken  as  the  rep- 
resentative of  the  means  of  living,  the  representative  of  com- 
modities; and  in  order  that  it  may  be  a  true  representative 
it  must  be  based  on  commodities  and  kept  in  harmony  with 
them. 

The  real  standard  of  values  is  command  of  the  means  of  life, 
and  not  a  grain  of  gold  which  may  at  one  time  have  twice  the 
command  over  the  means  of  life  that  it  possesses  at  another 
time. 


114  £flILOSOPHY  OF 

The  purpose  of  money  being  the  transfer  of  equivalences 
in  purchasing  power  —  equivalences  of  command  over  commo- 
dities in  general  —  equivalences  in  exchangeable  value,  it  is 
clear  that  the  base  or  standard  should  be  something  that  is 
constant  in  exchangeable  value;  and  the  only  thing  that  is 
thus  constant  is  a  composite  of  all  commodities.  No  one  com- 
modity, nor  two,  nor  three  commodities  can  be  relied  on  to 
be  constant  in  exchange  value,  or  have  the  same  command 
over  life  and  the  world;  but  the  average  of  all  commodities 
(in  the  broad  sense)  will  do  this.  The  sum  of  the  internal  ex- 
change values  of  any  list  of  commodities  is  a  constant  quan- 
tity. Take  leather,  corn  and  iron,  for  example,  and  suppose 
that  last  month  100  units  of  leather  exchanged  for  100  units 
of  corn,  or  100  units  of  iron,  we  may  represent  the  exchangee 
thus: 

100  iron  (spades  e.  g.)  would  buy.  .......   {  and  j 

100  leather  (shoes  perhaps)  would  buy..   { 


100  corn  would  buy   .  ,  5°  leather. 

and  50  iron. 


Sum  of  exchange  values  .................     300 

Now  suppose  the  iron  loses  20  per  cent,  of  ,its  exchange 
value  by  reason  of  cheaper  production  perhaps.  Then  corn 
and  leather  will  gain  in  exchange  power  exactly  as  much  as 
iron  loses.  Iron  will  buy  less  corn  and  leather,  but  corn  and 
leather  will  buy  more  iron  than  before.  This  command  over 
iron  increases  in  the  same  ratio  that  iron's  command  over  them 
diminishes,  and  the  sum  of  the  internal  exchange  values  re- 
mains the  same  as  before,  the  table  taking  this  form: 


100  iron  will  buy    ......  _  ; 

\  and  40  leather. 


100  leather  will  buy  ...................     {       .  6° 

I  and  50  iron. 

100  corn  will  buy   .  {       n  G0  }eather- 

I  and  50  iron. 


Total  of  exchange  values    300 

Iron  having  lost  one-fifth  of  its  power  can  only  buy  40 
corn  and  40  leather,  which  leaves  60  corn  for  leather  to  buy 


THE   BEST   MONEY.  315 

and  60  leather  for  corn  to  buy.  As  the  relations  between 
corn  and  leather  have  not  changed,  it  takes  60  leather  to  buy 
60  corn,  and  leather  has  40  left  which  buys  50  iron.  In  the 
same  way  corn  buys  60  leather  and  50  iron,  and  the  sum  of 
the  internal  exchange  values  of  the  group  is  300  as  at  first. 
The  external  exchange  values,  the  exchange  relation  between 
this  group  and  other  commodities  may  not  remain  constant, 
but  if  all  commodities  (in  the  broad  sense  including  services 
and  all  purchaseable  things)  are  included  in  the  list,  all  ex- 
change values  then  become  internal.  Wherefore  a  list  in- 
cluding all  commodities  is  the  constant  in  exchange  which 
science  seeks.  A  composite  including  a  large  number  of  com- 
modities carefully  selected  so  as  to  fairly  represent  all  classes 
of  purchaseable  things  is  much  nearer  the  real  base  and  in- 
finitely more  to  be  relied  upon  than  any  one  or  two  com- 
modities. A  composite  commodity  standard  is  the  true  base 
from  which  to  measure  the  variations  of  gold  and  every  other 
commodity. 

To  common  sense  and  reason  we  may  add  authority  to  the 
point  that  commodities  are  constant.  John  Stuart  Mill  says: 
"There  is  such  a  thing  as  a  general  rise  of  prices.  All  com- 
modities may  rise  in  their  money  price.  But  there  cannot  be 
a  general  rise  of  values.  It  is  a  contradiction  in  terms.  A 
can  only  rise  in  value  by  exchanging  for  a  greater  quantity 
of  B  and  O;  in  which  case  these  must  exchange  for  a,  smaller 
quantity  of  A.  All  things  cannot  rise  relatively  to  one  an- 
other. If  one-half  of  the  commodities  in  the  market  rise  in 
exchange  value,  the  very  terms  imply  a  fall  of  the  other  half; 
and  reciprocally,  the  fall  implies  a  rise.  Things  which  are 
exchanged  for  one  another  can  no  more  all  fall,  or  all  rise, 
than  a  dozen  runners  can  each  outrun  all  the  rest,  or  a  hun- 
dred trees  all  overtop  one  another." 

Robert  Giffen,  the  great  English  statistician,  speaking  of 
the  commodity  lists  of  Sauerbeck,  Soetbeer,  The  Economist, 
etc.,  says  that  even  shorter  lists  carefully  selected  would 
answer,  and  declares  that  "Viewing  a  long  period  dynamically 
it  is  beyond  all  question  that  the  commodities  are  compara- 

9 


116 


RATIONAL  MONEY. 


DIAGRAM  Vf. 
VARIATIONS  IN  THE  VALUE  OF  GOLD  AND  SILVER 

THE  RELATIVE    AMOUNTS   OF  COMMODITIES  NECESSARY  TO  BUY  100  GRAINS  Of  SOLD  IN  DIFFERENT  YEARS. 
PLATTED  FROM    THE  DATA  OF  SAUERBECK  AND  THE  AMERI&AM.  THE  DOTTED  LINE  REPRESENTS    SILVER. 


D I '.GRAM     Vll. 

VALUE  OF  WKFAT.  I.MTERMS  OF  COMIOOITKS 

THE  AMOUNT  OF  COMMODITIES  NECESSAKY  TO  BUY  100  UNITS  OF  WHEAT. 
IN  1573  &  I&77   !00  UNITS -Or  WHEAT  WERE  EQUIVALENT  TO  100  UNITS  of 

COMMODITIES  BYTME   AuDRICM  WEIGHTED  5TANDA-.RD. 


/ALXIE  OF  WHEAT  IN  TERMS  OF  COMMODITIES 
ENGLISH  DATA 


THE    BEST   MONttY. 


117 


DIAGRAM  ix 
VALUE  OF  IRON  INTERMS.  OF  coMMoorrrES ' 

RELATIVE  NUMBER  OF  UNITS  OFGOMMODITieS  NECES5ARY  TO  BUY  IOOUNIT50F  IRON 
IN  DIFFERENT  YEARS  BY    SAUERBECK'S  DATA 


RELATIVE  NUMBER  CH  UNITS 


DIAGRAM  x 
VALUE  OF  BEEF  IN  TERMS  OF  COMMODITIES 

OF  COMMODITIES. NECESSARY  TO  BUY  100  UNITS  OF.8ECF  m  DIFFERENT  YEARS   BY  SAUERBECK'S   DATA 


DIAGRAM   xi. 

VALUE  OF  LEATHER  INTERMS  OFCOMMODITIES 

RELATIVE  AMOUNTS  OF  COMMODITIES  IN  GENERAL  NECESSARY  TO  BUY  100  UNITS  OF  LEATHER 
IN  DIFFERENT  YEARS.  SAUERBECK'S  DATA.. 


118 


PHILOSOPHY  OF  MONEY. 


tively  steady,  and  only  money  changes."20  That  is,  even  a 
small  group  of  commodities  well  selected  will  keep  quite 
close  to  the  real  standard,  the  all-commodities  base,  very  much 
closer  than  the  money  of  the  present  day. 

The  accompanying  diagrams  take  commodities  as  a  base  and 
record  the  variations  of  gold.21  The  usual  method  is  to  regis- 
ter prices,  i.  e.,  the  amount  of  money  necessary  to  buy  a  given 
quantity  of  commodities.  Here  we  reverse  the  process  and  rep- 
resent the  relative  amounts  of  commodities  necessary  to  buy 
100  grains  of  gold.  That  is,  we  take  a  fixed  quantity  of  gold 


DIAGRAM  XII. 

VALUE  or  COTTON  IN  TERMJ  of  COMMODITIES 
•RELATIVE  AMOUNT  OF  COMMODITIES  NECESSARY  TO  BUY  100  UNITS  OF  COTTON  IN  DIFFERENT  YEARS. 


VERTICAL 

SCALE  HALF 


and  mark  the  variations  of  its  value  in  commodities.  ~No 
one  who  will  glance  at  the  diagrams  can  entertain  the  idea 
that  gold  or  silver  or  any  one  of  the  commodities  dealt  with 
could  possibly  be  a  fair  representative  of  the  commodity  base, 
or  a  just  and  proper  basis  for  money  intended  to  transfer 
equivalences  in  commodities,  or  command  over  the  means  of 
life  and  happiness.  Neither  gold  or  silver  money,  nor  any 
money  convertible  into  gold  or  silver  at  fixed  weights  so  as 


(20)  Growth  of  capital,  p.  61. 

(21)  we  have   had  the  diagrams  made  from  the  data  of   Sauerbeck,   the 
Aldrich  Committee  and  The  American.    In  some  cases  the  maker  used  the 
Aldrich  translation  of  Sauerbeck  to  the  1860  base  together  with  Sauerbeck's 
general    price    levels    as    given    in    the    Journal    of    the    Royal    Statistical 
Society. 


THE    BEST    MONEY.  119 

to  be  dependent  upon  them  or  tied  to  their  values,  could  be 
relied  on  to  have  a  constant  purchasing  power,  or  truly  repre- 
sent the  all-commodity  base.  The  only  rational  money  is  an 
independent22  currency  based  on  a  composite  commodity 
standard. 

An  independent  money  regulated  by  a  composite  com- 
modity standard  would  not  only  be  vastly  superior  to  our 
present  money  in  steadiness  of  value;  it  would  be  superior  also 
in  respect  to  every  other  attribute  and  function  of  money. 

In  general  receivability  our  paper  ranks  higher  than  gold. 
Mr.  Eltweed  Pomeroy,  President  of  the  National  Direct  Leg- 
islation League,  writing  in  the  Arena  for  September,  1897, 
says  on  p.  321:  "To-day  the  civilized  world  has  settled  on 
paper  as  the  best  form  of  money.  During  the  money  famine 
of  1894  in  New  York  City,  gold  coin  commanded  a  premium 
of  1  per  cent,  over  bullion,  silver  coin  of  2  per  cent.,  and 
paper  of  4  per  cent.,  showing  that  paper  was  preferred  to 
metallic  money.'7  And  silver  certificates  with  no  "intrinsic" 
equivalent  back  of  them  were  as  eagerly  sought  and  at  as 
high  a  premium  as  gold  notes  or  any  other  paper.  It  was 
money,  not  gold,  the  merchants  wanted,  and  paper  was  the 
most  convenient  form  of  it.  Even  the  banks  abandon  metal 
in  time  of  panic,  and  the  Government  abandons  it  in  time  of 
war.  If  we  have  to  resort  to  paper  whenever  the  financial 
situation  is  difficult,  why  not  keep  it  all  the  time?  If  it  will 
answer  for  the  most  complex  and  dangerous  periods,  surely  it 
will  do  so  for  the  easy  times,  and  will  save  all  the  jolts  and 
derangements  that  so  often  accompany  the  transition  from  one 
sort  of  money  to  the  other. 

It  is  decidedly  expensive  to  use  gold  for  a  service  that 
paper  can  perform.  It  is  unwise  to  dig  silver  and  gold  out 
of  the  ground  at  enormous  cost  in  order  that  the  precious 


P)  It  might  be  redeemable  in  gold  or  silver  or  both  AT  THE  CURRENT 
MARKET  PRICES  of  those  metals  without  being  DEPENDENT.  The  essential 
matter  is  that  the  value  of  the  currency  should  not  be  dependent  on  the 
value  of  the  metals  in  such  a  way  as  to  be  in  danger  of  following  them  in 
their  wobbles,  instead  of  remaining  constant  with  the  commodity  base.  Con- 
vertibility by  weight,  so  that  a  dollar  means  so  meny  grains  of  gold,  no 
matter  what  the  purchasing  power  of  these  grains  may  be,  is  necessarily 
destructive  of  steadiness  in  the  dollar;  but  convertiDility  into  gold  at  the 
amount  a  commodity  based  dollar  would  buy  at  the  time  is  not  a  dependence, 
but  only  a  convertibility  of  the  kind  that  exists  in  respect  to  any  other  com- 
modity in  the  market.  Such  a  provision  however  would  be  of  doubtful 
wisdom. 


120  RATIONAL  MONEY. 

product  may  be  used  for  a  purpose  that  can  be  answered  as 
well  or  better  by  a  product  that  is  almost  costless.  Paper  at 
less  than  1  cent  an  ounce  will  do  the  work  of  money  better 
than  gold  worth  more  than  $20  an  ounce.  Is  it  not  folly 
to  coin  the  gold  and  bury  it  in  vaults,  or  scatter  it  over  the 
world  in  the  fine  dust  that  wears  from  its  surface  as  it  passes 
from  hand  to  hand  and  counter  to  counter?  Better  reserve 
the  gold  for  purposes  paper  cannot  serve — beautiful  watch- 
cases,  fine  table  service,  etc.,  where  it  will  last  practically  for- 
ever. 

Dr.  C.  F.  Taylor  throws  a  strong  light  on  this  point  when 
he  says  that  the  present  idea  of  money  "is  like  writing  a  deed 
to  a  house  on  a  plate  of  gold  of  equal  value  with  the  house. 
It  is  an  enormous  waste.  Money  is  a  title  to  wealth;  and 
money  made  of  gold  and  silver  is  just  like  titles  to  property 
written  on  gold  and  silver/723 

In  elasticity  an  independent  regulated  paper  would  be  in- 
comparably superior  to  money  on  a  metallic  base.  The  metal 
base  is  subject  to  nature's  limitations,  and  restrains  in  greater 
or  less  degree  the  flexibility  of  the  whole  currency  based  upon 
it,  while  an  independent  paper  possesses  any  degree  of  flexi- 
bility that  .may  be  required.  As  the  value  of  money  depends 
upon  its  volume,  this  quality  of  elasticity  is  of  the  first  im- 
portance. A  money  whose  volume  is  subject  to  other  control 
than  that  of  the  agents  of  the  sovereign  people  cannot  be 
expected  to  respond  to  the  needs  of  the  people,  and  expand 
or  contract  as  occasion  may  require  to  keep  the  dollar  steady. 
In  1894  European  banks  of  issue  increased  their  hoardings 
of  gold  by  176  millions,  an  amount  that  exceeded  the  whole 
worlds  supply  for  3  years,  after  deducting  enough  for  the 
arts.24  That  one  fact  speaks  volumes.  With  independent 
paper  they  might  hoard  all  they  pleased  and  its  place  could  be 
easily  supplied.  There  could  be  no  corners,  no  Black  Fridays, 
no  endless  chains  of  Treasury  withdrawals  and  bond  issues. 

In  portability  gold  can  make  no  pretence  of  rivalry  with 
paper.  To  carry  $100,000  in  gold  a  merchant  would  require 


(23)  Medical  World,  August,  '97,  p.  349. 

(24)  Hon.  Henry  Winn,  Amer.  Mag.  of  Civics,  December,  '95,  p.  578. 


THE    BEST   MONEY.  121 

a  team;  but  in  paper  he  can  carry  it  in  his  pocket  without 
trouble. 

In  regard  to  counterfeiting,  Del  Mar  says:  "The  silk 
threaded  distinctive  fibre  paper,  the  water  marks,  the  printing 
in  colors,  the  highly  artistic  vignettes,  the  geometrical  lathe 
work,  the  numbers,  the  signatures  and  other  mechanical  safe- 
guards of  the  modern  paper  note  render  it  far  more  difficult 
to  imitate  than  coin." 

In  respect  to  the  regulation  of  industry  and  the  diffusion  of 
wealth  no  money  based  on  one  or  two  commodities  can  be 
trustworthy,  because  such  money  cannot  avoid  rising  and  fall- 
ing in  value.     The  disasters  of  rising  and  falling  prices  are 
inevitable  with  a  metallic  money  or  a  metallic  base.     It  will 
not  do  to  charge  these  disasters  to  the  abuse  of  the  credit  sys- 
tem.    It  is  true  that  expanding  credit  has  often  much  to  do 
with  the  rise  of  prices,  and  shrinking  credit  with  their  fall. 
But  it  is  the  business  of  a  rational  money  to  correct  and  steady 
credit — absent  itself  when  credit  is  over-brisk,  and  be  present 
in  force  when  credit  retires  from  active  business.     This,  gold 
fails  to  do.     It  is  brisk  when  credit  is  brisk  and  absent  when 
credit  is  absent — just  the  opposite  of   what   it   ought  to  do. 
Moreover  "The  abnormal  expansion  of  credit  is  itself  an  effect 
which  must  be  ascribed  to  the  gold  standard."25    Gold  causes 
or  permits  prices  to  go  up.     If  it  becomes  more  plentiful  in 
relation  to  business  it  may  cause  a  rise  of  prices.     If  it  re- 
mains   stationary   in   quantity    while   expanding    credit    or 
diminishing  business  produce  a  rise  of  prices,  then  it  permits 
the  rise.     It  is  the  business  of  a. true  money  not  to  vary  in 
value — it  should  keep  itself  at  a  constant  level,  and  to  do  this 
it  must  keep  average  prices  at  a  constant  level.     It  must  not 
merely  refrain  from  causing  a  rise  or  fall — it  must  not  permit 
a  rise  or  fall.    If  credit  unduly  expands  gold  should  contract 
sufficiently  to  balance  the  excess,  prevent  a  rise  and  keep 
prices  level.     If  credit  shrinks  unduly,  gold  should  expand 
enough  to  prevent  a  fall  of  prices.     But  gold  does  not  act 
that  way.     It  frequently  causes  a  change  of  the  price  level, 


(25)  Prof.  J.  Allen  Smith,  Annals  Ainer.  Acad.  P.  &  S.  Sc.,  March,  '96,  p. 
19.    (See  also  p.  17.) 


122  PHILOSOPHY  OF  MONEY. 

and  rarely  or  never  prevents  one.  It  adds  its  own  weight  to 
increase  the  vibrations  of  credit  instead  of  balancing  them. 
A  movement  of  gold,  or  business,  or  credit  makes  prices  fall. 
Does  gold  expand  to  restore  the  balance?  E"o!  It  goes  into 
hiding,  still  further  diminishing  the  money  volume,  causing  a 
further  fall  of  prices,  which  results  in  another  shrinkage  of 
credit,  more  hoarding  of  gold,  a  new  fall  of  prices,  and  so  on. 
Every  round  of  the  disaster  is  emphasized  and  intensified  by 
gold  instead  of  being  checked  by  it.  On  the  other  hand,  if 
a  movement  of  gold  or  business  or  credit  causes  a  rise  of  prices, 
a  rapid  expansion  of  credit  is  apt  to  result.  Men  are  willing 
to  trust  on  a  rising  market,  for  times  appear  to  be  prosperous 
and  profits  are  large.  The  expansion  of  credit  still  further 
lifts  the  value  of  goods  and  lowers  the  value  of  gold.  The 
higher  the  prices  of  goods,  the  more  gold  a  certain  quantity 
of  goods  will  bring;  the  less  the  value  of  gold.  The  more 
dollars  you  have  to  give  for  a  sack  of  flour,  the  fewer  the 
pounds  of  flour  a  dollar  will  buy.  So  that  rising  prices  mean 
depreciating  gold.  Does  gold  do  anything  to  prevent  its  de- 
preciation when  credit  expands  unduly?  ~No.  It  is  apt  to 
intensify  its  humiliation.  It  comes  out  of  its  hiding  places, 
for  hoarding  does  not  pay  on  a  rising  market.  The  volume  of 
money  is  thus  still  further  increased.  Prices  rise  higher, 
credit  expansion  is  again  stimulated,  which  produces  a  new 
rise  of  prices  and  fall  of  gold,  and  so  on  in  a  seamless  circle 
of  rising  prices,  expanding  credit,  falling  gold,  till  a  crash 
comes,  or  the  expansion  is  checked  by  prudence,  or  lack  of 
materials,  or  foreign  conditions,  and  for  it  all  gold  is  the 
responsible  party  because  it  is  the  business  of  a  true  money  to 
prevent  rising  prices,  which  at  each  step  provoke  a  new  infla- 
tion of  credit.  The  fact  that  gold  is  subject  to  such  variations, 
no  matter  what  the  cause  may  be,  shows  that  it  is  not  a  good 
standard. 

If  in  contemplation  of  all  the  great  advantages  of  inde- 
pendent paper  based  on  a  composite  commodity  standard,  you 
ask  why  it  is  that  gold  is  still  the  foundation  of  our  finances, 
the  answer  is  two-fold:  (1)  The  gold  standard  is  very  val- 
uable to  creditors  and  bankers,  and  to  the  men  who  devote 


THE    BEST   MONEY. 


123 


themselves  to  the  cornering  of  money  and  the  capture  of 
millions  by  watching  or  controlling  the  movement  of  gold 
values.  In  one  of  the  flurries  a  shrewd  New  Yorker  made 
two  millions  at  a  single  deal  on  gold  the  Government  had 
contracted  to  him  at  a  fixed  price;  and  recently  a  New  York 
syndicate  multiplied,  this  figure  by  four  on  a  bond  contract 
with  the  Treasury.  The  people  thus  interested  in  gold  and  its 
fluctuations  have  a  great  deal  of  power  at  Washington.  (2) 
A  really  complete  and  scientific  plan  for  a  regulated  paper 
based  on  commodities  is  of  very  recent  date,  and  as  yet  few 
people  have  become  acquainted  with  the  merits  of  the  system. 
In  the  following  chapter  we  will  try  to  explain  the  details 
of  such  a  plan. 


CHAPTER  III. 

THE   MULTIPLE   STANDARD. 

From  what  precedes  it  appears :  First.  That  a  steady  money, 
a  dollar  of  constant  purchasing  power,  is  a  matter  of  the  high- 
est importance  to  justice,  prosperity,  development,  civilization. 
Second.  That  metallic  money  is  not  steady,  and  any  plan  to 
make  it  steady  would  be  very  difficult  if  not  impossible  to 
execute.  Third.  That  the  value  of  independent  National 
paper  can  be  regulated  without  difficulty,  its  volume  being 
under  the  control  of  the  issuing  government,  wherefore  by 
intelligent  regulation  in  the  interests  of  the  public,  it  can 
easily  be  kept  at  a  uniform  level  so  that  it  will  always  repre- 
sent substantially  the  same  amount  of  commodities  in  general. 

The  problem  is  to  replace  the  single  standard,  and  the 
double  standard  by  the  multiple  standard — to  base  the  dollar 
not  on  one  commodity,  nor  on  two,  but  so  far  as  possible  on 
the  whole  mass  of  commodities,  using  the  word  in  its  widest 
sense  to  include  goods,  services,  privileges  and  all  manner  of 
purchasable  things.1  The  ideal  basis  of  value  is  the  whole 


(*)  The  Multiple  Standard  appears  to  have  been  first  proposed  by  Joseph 
Lowe,  in  1822,  in  his  "Present  State  of  England;"  which  contains  a  very 
able  treatise  on  the  variation  of  prices,  state  of  the  currency,  etc.  His  idea 
was  to  use  the  standard  in  long  time  contracts.  He  proposed  that  persons 
should  be  appointed  to  collect  information  concerning  the  prices  of  staple 
articles.  Having  regard  to  the  comparative  quantities  of  commodities  con- 
sumed in  a  household,  he  would  frame  a  table  of  reference,  showing  in  what 
degree  a  money  contract  must  be  varied  so  to  make  the  purchasing  power 
uniform.  Jevons,  in  his  "Money  and  the  Mechanism  of  Exchange,"  after 
outlining  Lowe's  plan  substantially  as  above,  mentions  Mr.  G.  Poulett  Scrope 
as  having  independently  proposed  a  similar  scheme  11  years  later,  in  his 
"Inquiry  into  the  Nature  of  a  Just  Standard  of  Value,"  his  "Principles  of 
Political  Economy,"  p.  406,  and  "Political  Economy  for  Plain  People,"  p. 
308.  The  plan  was  taken  up  by  Mr.  G.  R.  Porter  in  1838,  in  "The  Progress 
of  the  Nation."  The  Multiple  Standard  has  also  been  advocated  by  Count 
Soden  and  Prof.  Roscher,  of  Germany,  Prof.  Walras,  of  Lausanne,  Prof. 
Jevons  Pres.  F.  A.  Walker,  Prof.  Simon  Newcomb,  Prof.  Alfred  Marshall, 
President  E.  B.  Andrews,  Pres.  Thos.  E.  Will,  Hon.  Henry  Winn,  Prof. 
Prank  Parsons,  A.  I.  Fonda,  Prof.  J.  Allen  Smith,  Dr.  C.  F.  Taylor  and 
Eltweed  Pomeroy. 

The  earlier  writers  confined  themselves  to  suggesting  the  use  of  the 
multiple  standard  as  the  basis  of  payment  in  long  time  contracts.  The  idea 
of  controlling  the  movement  of  the  money  volume  so  as  to  keep  the  dollar  in 
harmony  with  the  commodity  standard  does  not  appear  to  have  occurred 
even  to  Prof.  Jevons  or  Pres.  Walker.  Profs.  Walras,  Newcomb,  Will, 
Andrews  and  the  last  six  writers  named  above  have  advocated,  not  merely 
the  use  of  a  commodity  base  as  a  standard  for  deferred  payments,  but  the 


THE    MULTIPLE    STANDARD.  125 

iass  of  commodities.  The  best  practicable  basis  is  the  largest 
number  of  commodities  that  can  be  handled  with  definiteness 
and  accuracy.  The  nearest  to  all  commodities  is  a  large  num- 
ber of  commodities. 

In  order  to  substitute  intelligent  public  control  for  chance 
and  private  scheming,  it  is  only  necessary: 


incorporation  of  the  multiple  standard  in  the  monetary  system  and  the 
regulation  of  money  in  conformity  to  that  standard.  Prof.  Newcomb's 
article  in  the  North  American  Review  for  September,  1879,  was  a  very 
valuable  contribution  to  the  subject.  He  wished,  however,  to  continue  the 
use  of  gold  and  silver,  making  the  currency  redeemable  not  in  a  fixed  weight 
of  metal,  but  in  such  quantity  as  should  at  the  time  possess  a  purchasing 
power  equal  to  the  unit  value  of  the  multiple  standard. 

Pres.  Andrews,  in  the  first  edition  of  "An  Honest  Dollar,"  1889,  followed 
Prof.  Walras  in  advocating  the  regulation  of  the  currency  by  the  issue  or 
withdrawal  of  token  silver  coins,  or  silver  certificates.  Gold  was  to  continue 
to  be  the  money  base,  paper  dollars  being  redeemable  in  a  fixed  weight  of 
metal,  but  the  value  of  gold  to  be  kept  in  harmony  with  a  multiple  com- 
modity standard  by  increasing  or  diminishing  the  volume  of  the  currency, 
thru  the  use  of  call  bonds.  Prof.  Marshall,  in  the  Contemporary  Review  for 
March,  1887,  suggests  the  plan  of  using  an  inconvertible  paper  money  kept 
in  harmony  with  the  multiple  standard  by  the  Government's  buying  consols 
(bonds)  to  enlarge  the  circulation  when  falling  prices  show  that  the  money 
volume  is  too  small,  and  selling  consols  when  the  circulation  needs  to  be 
contracted.  He  also  suggests  a  plan  for  applying  the  multiple  standard  to 
the  regulation  of  a  convertible  currency.  The  paper  sovereign  to  be  based  on 
the  commodity  unit,  but  redeemable  in  half  a  standard  unit's  worth  of  gold 
bullion  plus  half  a  unit's  woi'th  of  silver  bullion  at  the  market  value  of  those 
metals  at  the  time.  So  far  as  I  know,  Professor  Marshall  was  the  first  to 
suggest  the  use  of  an  inconvertible  currency  in  connection  with  the  multiple 
standard.  On  this  side  of  the  water,  I  believe,  the  Hon.  Henry  Winn  was 
the  first  to  conceive  the  idea  of  an  independent  national  paper  based  on  the 
multiple  standard.  He  worked  it  out  without  knowing  of  Marshall's  sug- 

festion,  and  outlined  it  in  a  speech  in  Fanueil  Hall  in  1891,  when  he  was 
'copies'  Party  candidate  for  Governor  of  Massachusetts.  In  December, 
1895,  he  published  in  the  American  Magazine  of  Civics  one  of  the  most 
valuable  discussions  of  the  Multiple  Standard  that  we  possess.  In  a  series 
of  lectures  given  in  Boston  in  1894,  Thos.  E.  Will,  now  President  of  Kansas 
State  Agricultural  College,  advocated  a  government  paper  money  regulated 
by  a-  multiple  standard.  Speaking  of  the  assertion  that  government  papL>r 
money  would  not  be  safe— that  it  would  be  "dangerous  for  the  government 
to  issue  promises  to  pay  and  call  them  money."  Professor  Will  said  with 
fine  irony:  "Instead  of  this  the  banks  should  issue  their  promises  to  pay  and 
call  them  money.  Bank  promises  would  be  perfectly  sound  and  trustworthy 
for  the  reason  that  they  would  rest  on  government  bonds.  What  is  a  govern- 
ment bond?  Answer:  A  government  promise  to  pay.  Hence  a  government 
promise  when  called  a  greenback  is  utterly  untrustworthy,  but,  a  bank 
promise  when  based  on  a  government  promise  called  a  bond  is  perfectly 
secure."  In  "Our  Country's  Need,"  (1894),  Sec.  21,  I  advocated  substanti- 
ally the  same  plan  that  is  elaborated  in  the  present  volume.  In  1895,  Mr. 
A.  I.  Fonda,  in  "Honest  Money,"  strongly  urged  the  claims  of  inconvert- 
ible multiple  standard  money,  arguing  pp.  157-8,  that  "Since  the  value  of  the 
circulating  medium — the  money — depends  on  supply  and  demand,  the  supply 
should  be  so  controlled  that  the  value  of  the  money  would  always  correspond 
with  that  of  the  standard  adopted;  and  since  paper  money  is  the  cheapest, 
the  most  convenient,  and  the  only  money  entirely  free  from  outside  influences 
affecting  its  volume  and  value,  our  currency  should  be  a  paper  money." 

The  most  profound  discussion  of  the  subject  that  has  yet  appeared  is  con- 
tained in  the  article  of  Prof.  J.  Allen  Smith  in  the  "Annals  of  the  American 
Academy  of  Political  and  Social  Science,"  March,  1896.  The  Professor  proves 
the  case  for  an  independent  National  paper  money  regulated  in  volume  by 
the  government,  so  that  its  value  shall  remain  substantially  constant  with 
a  carefully  selected  multiple  standard.  Dr.  C.  F.  Taylor,  during  the  last 
two  years,  has  urged  the  same  idea  in  his  pungent  "Monthly  Talks"  in  the 
Medical  World,  and  in  The  Arena,  September,  1897,  Mr.  Eltweed  Pomeroy, 
President  of  the  National  Direct  Legislation  League,  published  a  spirited 
popular  argument  for  the  same  plan.  The  unanimity  with  which  thoughtful 
men  adopt  the  independent  multiple  standard  paper  system  as  soon  as  it 
is  thoroly  understood  by  them  is  a  powerful  evidence  of  the  wisdom  of  the 
plan.  (See  further,  Chapter  IV.) 


126  THE   MULTIPLE   STANDARD. 

First.  To  replace  our  bank  bills  and  convertible  notes  with 
independent  paper  money  issued  by  the  National  Govern- 
ment as  full  legal  tender  for  all  debts  and  dues,  public  and 
private,  with  no  promise  to  pay  gold  or  silver,  no  promise  to 
pay  anything,  but  only  a  promise  to  receive  it  at  its  face  for 
taxes,  duties  and  all  public  dues,  and  to  see  that  it  is  received 
at  par  in  settlement  of  private  debts,  which  -promises  being 
enforced  by  public  opinion  and  the  courts  confer  upon  the 
paper  the  fundamental  attribute  of  general  receivability  or 
legal-tender  quality. 

Second.  A  commission  of  eminent  men  should  be  appointed 
who  would  watch  the  course  of  prices  in  the  chief  markets  of 
the  country,  tabulate  the  results  and  publish  them  monthly, 
weekly,  or  at  whatever  interval  might  be  specified  by  law. 
They  would  report  to  the  Secretary  of  the  Treasury  any  move- 
ment in  the  level  of  general  prices,  together  with  their  estimate 
of  the  amount  of  increase  or  decrease  in  the  volume  of  the 
currency  necessary  to  steady  prices. and  bring  them  again 
to  a  normal  level. 

Third.  The  requisite  expansion  or  contraction  of  money 
volume  could  be  effected  in  several  ways.  The  best  methods 
that  have  been  suggested  are  the  use  of  call  bonds,  the  buying 
and  selling  of  securities,  the  establishment  of  a  sliding  scale 
of  interest  on  government  loans,  and  the  inter-adjustment  of 
taxation  and  public  expenditure. 

If  more  money  is  paid  out  by  the  Government  in  its  or- 
dinary expenses  or  for  special  public  improvements  than  is 
taken  in  by  taxation,  the  volume  of  the  currency  is  increased 
and  prices  raised,  or  a  fall  cancelled;  while  on  the  other  hand 
if  the  taxes  are  made  larger  than  the  expenditures,  the  volume 
of  money  is  decreased  and  prices  lowered,  or  a  rise  counter- 
acted. 

A  method  requiring  less  time  to  produce  is  effects,  and 
therefore  affording  greater  elasticity  to  the  monetary  system 
would  be  the  issue  of  one  or  two  hundred  millions  of  call 
bonds  payable  at  the  pleasure  of  the  Government,  interest  to 
cease  on  call.  The  currency  could  be  contracted  by  selling 
such  bonds,  and  expanded  by  calling,  them  in,  wherefore  the 


good 
way 


THE    MULTIPLE   STANDARD.  127 

Government,  by  issuing  and  recalling  bonds,  would  be  able 
to  control  the  money-volume.* 

Another  plan  would  be  for  the  Government  to  add  to  the 
currency  volume  by  going  into  the  market  and  buying  up 

y  securities :  National,  State,  and  municipal  bonds,  rail- 
and  telegraph  securities,  real  estate,  etc.,  or  other  prop- 
erty obtainable  with  the  highest  advantage  and  safety, — such 
property  to  bet  sold  when  the  currency  needed  contraction. 
This  would  act  with  great  rapidity  and  would  have  the  further 
advantage  that,  the  Government  would  buy  on  a  falling  mar- 
ket and  sell  on  a  rising  market,  yielding  incidentally  a  revenue 
that  might  be  sufficient  to  cover  all  the  expenses  of  collecting 
the  data,  etc.,  and  leave  a  margin  of  profit  besides. 

A  fourth  method  would  be  for  the  Government  to  loan 
money  on  good  security,  U.  S.  bonds,  State  and  municipal 
bonds,  laud,  buildings,  deposits  of  gold  and  silver,  perhaps 
even  first  class  paper  and  personal  property  in  case  of  special 
need.  If  such  loans  were  made  at  an  interest  varying  with 
the  movement  of  prices,  the  volume  of  the  currency  would 
probably  receive  all  needed  regulation  automatically.  The 
law  would  fix  a  sliding  scale  of  interest  to  be  paid  to  the  Gov- 
ernment on  such  loans,  arranging  said  scale  so  that  the  rate  of 
interest  should  rise,  perhaps  in  geometric  ratio,  as  prices  rose 
above  the  normal  level,  and  fall  in  corresponding  ratio  as 
prices  fell.f  The  result  would  be  that  money  would  be  plen- 
tifully borrowed  on  a  falling  market  when  money  is  scarce, 
and  the  new  influx  would  lift  prices  again,  while  on  a  rising 
market  interest  would  pile  up  at  too  rapid  a  rate  for  debtors, 
and  loans  would  be  paid  back  to  the  Government,  thereby  con- 
tracting the  currency  and  checking  or  cancelling  the  rise  of 
prices. 

Thus  by  taxation  and  expenditure,  lending  and  borrowing, 


*If  the  bonds  were  made  payable  on  demand  it  is  probable  that  they 
could  be  made  to  act  automatically  to  prevent  any  serious  fluctuation.    (See 


Money,  p.  166  (McMillan  &  Co.,  1895).  Fonda  would 
use  existing  banks  as  distributing  agencies  for  the  Government  loans,  guard- 
ins  against  monopoly  by  providing  that  the  loans  should  be  open  to  all  on 
equal  terms  and  making  the  list  of  acceptable  securities  as  wide  as  possible 
consistent  with  safety.  It  is  perfectly  practicable  to  use  existing  banks,  bi 
it  would  be  much  better  to  establish  a  system  of  Postal  Banks  and  us< 
them  as  agencies  in  all  the  monetary  transactions  of  the  Government.  (See 
infra  178.) 


128  THE    MULTIPLE    STANDARD. 

buying  and  selling,  the  Government  could  regulate  the  vol- 
ume and  consequently  the  value  of  money.  All  the  methods 
mentioned  have  their  advantages,  and  might  be  used  in  com- 
bination. The  law  should  make  it  the  positive  duty  of  the 
Secretary  of  the  Treasury  to  maintain  as  nearly  as  possible  a 
uniform  level  of  prices. 

To  aid  him  in  doing  this,  he  would  obtain  information  in 
regard  to  the  acreage  of  various  crops,  condition  of  the  crops 
from  time  to  time  in  all  parts  of  the  country,  the  out-put  of 
various  kinds  of  mines,  the  building  and  operation  of  various 
kinds  of  factories,  etc.,  and  publish  such  information  at  fre- 
quent intervals.  He  would  also  consider  the  probable  foreign 
demand  for  various  products,  '.he  actual  movements  of  prices, 
as  recorded  by  the  Commission,  etc.,  etc. 

In  obtaining  the  periodic  record  of  average  prices  the  Com- 
mission should  take  as  wide  a  range  of  purchaseable  things 
as  possible.  It  might  not  be  possible  at  first  to  include  such 
items  as  rent,  insurance,  taxes,  education,  medical  attendance, 
legal  advice,  domestic  service,  transportation,  etc.,  but  it 
seems  clear  that  an  effort  should  be  made  to  do  so  as  soon  as 
a  body  of  data  sufficient  to  give  a  definite  character  to  these 
items  can  be  collected.  Rent,  insurance,  taxes,  labor,  etc.,  are 
things  that  almost  everyone  has  to  buy,  and  if  they  are  not 
included  in  the  estimate  a  change  in  them  may  seriously  alter 
the  ordinary  purchasing  power  of  the  dollar.  By  ascertaining 
every  year  or  every  few  years  the  total  rents  paid,  and  the 
total  acres  and  total  rooms  rented,  a  rough  indication  of  the 
general  movements  of  rents  could  be  obtained,  and  in  the  inter- 
vals the  item  of  rent  could  be  deemed  a  constant  quantity,  or 
modified  in  accordance  with  the  observed  relation  between  its 
movement  and  that  of  the  growth  of  population  and  other 
varying  conditions.  In  case  of  insurance  and  taxes  it  is  easy 
to  obtain  a  reasonably  reliable  average.  The  last  census  shows 
that  $100  of  property  insurance  costs  about  $1  in  the  United 
States.  Similar  methods  may  be  employed  in  dealing  with 
the  average  cost  of  labor  and  services  of  various  sorts. 

Until  such  items  as  those  discussed  in  the  last  paragraph 
become  more  definite  and  generally  understood  than  at 


THE   MULTIPLE   STANDARD.  129 

present,  and  the  multiple  system  is  fully  established  in  the 
public  confidence  and  comprehension.,  it  would  be  best  to 
use  only  commodities  capable  of  easy  and  accurate  definition 
as  to  quantity  and  quality.  It  would  be  better  to  sacrifice 
completeness,  at  first,  for  the  sake  of  perfect  clearness  and 
defiiteness,  and  eliminate  every  item  the  correctness  of 
which  could  not  be  easily  tested  by  the  people.  One  or  two 
hundred  representative  commodities  could  be  selected  from 
the  price  lists  published  by  the  trade  journals,  and  a  careful 
record  kept  of  their  prices  at  New  York,  Chicago,  Philadel- 
phia, Boston,  New  Orleans,  San  Francisco,  etc.,  and  the  aver- 
age price  of  each  commodity  for  each  week  placed  in  the 
table  of  standard  prices.  The  sum  of  these  averages  divided 
by  the  number  of  commodities  would  give  the  price  level  for 
the  week  on  the  plan  of  simple  averages.  It  would  be  better 
in  many  respects  however  to  give  each  commodity  a  "weight" 
or  importance  in  the  calculation  in  proportion  to  its  import- 
ance in  the  expenditure  of  the  average  family.2 

It  is  obvious  that  to  allow  a  change  in  the  price  of  indigo, 
silk,  wine,  or  nutmegs  to  affect  the  composite  standard  and  the 

(2)  While  it  is  true  that  a  large  number  of  commodities  weighted  according 
to  their  relative  importance  is  the  ideal  requirement,  it  is  also  true  that  a 
very  substantial  degree  of  accuracy  may  be  obtained  without  weighting  and 
without  anything  like  an  exhaustive  list  of  commodities.  In  other  words,  the 
prices  of  all  commodities  vary  substantially  in  the  same  way  as  the  prices  of 
any  considerable  number  of  commodities  representing  the  various  groups. 
And  the  result  of  a  simple  average  is  but  slightly  different  from  the  result  of 
a  weighted  average.  Mr.  Sauerbeck  says:  "I  have  checked  my  figures  to 
some  extent  by  calculating  also  according  to  quantities  (consumed)  and  found 
that  the  change  in  prices  was,  if  anything,  more  important  than  is  actually 
shown  by  my  ordinary  index  numbers;  but  that  it  did  not  differ  materially." 
(Testimony  before  English  Gold  and  Silver  Commission,  December  8,  1886, 
Sec.  905.)  Palgrave's  table  given  in  the  preceeding  chapter  shows  the  same 
thing.  The  Aldrich  weighted  figures  vary  more  from  the  simple  average,  but 
there  is  reason  to  doubt  the  scientific  validity  of  the  methods,  and  even  the 
accuracy  of  that  report. 

The  fact  that  the  average  prices  of  all  commodities  vary  in  about  the 
same  way  as  the  average  prices  of  a  considerable  number  judiciously  selected 
is   shown   by   the   substantial   agreement   in   the   results  of   taking  different 
sets  of  commodities.    The  fall  of  prices  from  1875  to  1885, 
As  judged  by  the  22  commodities  of    the    Econo- 
mists Table  was 24y2  per  cent. 

.  As  judged  by  the  45  commodities   of    Sauerbeck's 

table 24y2  per  cent. 

As  judged  by  the  114  articles  of  Soetbeer's  Table  19.6  per  cent. 
As  judged  by  the  22  articles  of  Palgrave's  Table. .  22.  per  cent. 
As  judged  by  the  223  articles  of  the  Aldrich 

Tables 25.     per  cent. 

Divide  the  total  by  the  number  of  groups—  5)115.6 

The  fall  as  judged  by  average  of  all  the  groups..      23.1  per  cent. 

The  very  slight  difference  between  the  results  of  different  sets  of  com- 
modities estimated  by  different  men  and  on  prices  obtained  in  different 
markets,  is  a  fact  worthy  of  most  careful  consideration,  as  is  also  the 
equally  interesting  fact  that  the  average  of  all  the  tables,  23.1  per  cent,  is 
much  more  closely  represented  by  either  of  them  than  by  gold,  which  is  23 
points  away;  while  even  the  Hamburg  group  is  only  3%  points  off. 


130 


THE   MULTIPLE   STANDARD. 


value  of  the  dollar  equally  with  a  change  in  the  price  of  beef, 
butter,  leather,  wheat,  corn,  cotton,  etc.,  is  to  depart  from  the 
purpose  of  keeping  the  dollar  constant  in  its  power  of  making 
the  purchases  usually  made  with  it,  so  that  it  will  mean  al- 
ways the  same  thing  to  the  average  user  of  it — the  same  in- 
strument with  the  same  ability  to  do  what  he  wants  to  do 
with  it — the  same  command  over  what  he  wishes  to  obtain. 

The  average  family  spends  at  least  100  times  more  for 
wheat  than  for  indigo,  so  that  indigo  should  have  only  one- 
hundredth  part  as  much  weight  or  influence  as  wheat  in 
making  up  the  standard. 

The  following  table  shows  the  opinions  of  various  writers 
as  to  the  weight  that  should  be  given  to  different  articles : 

TABLE  XVII. 


Total   1000       1000       1000 

*  Butter  includes  also  cheese  and  milk. 


u 

bo 

T3 

s 

Ofl 

^ 

9 

> 

1-3 

w 

3 

m 

02 

|3j 

<! 

Butter*  

35 

75 

75 

30 

45 

80 

57 

Sugar    

35 

25 

25 

55 

45 

15 

33 

Wine    

35 

25 

25 

70 

45 

40 

Wool    

35 

25 

25 

75 

20 

20 

33 

Silk    

35 

25 

25 

10 

20 

15 

22 

Tea  &  coffee. 

35 

25 

25 

20 

20 

15 

23 

Wheat     

35 

65 

50 

110 

45 

100 

67 

Barley     

35 

65 

50 

55 

45 

35 

47 

Oats     

35 

65 

50 

60 

20 

50 

47 

Metals     

70 

50 

50 

15 

40 

80 

51 

Coal   

100 

.  . 

.  . 

40 

70 

Indigo     

35 

1 

10 

5 

20 

1 

12 

Flax  

35 

3 

30 

10 

20 

5 

17 

Palm  Oil    

35 

1 

10 

20 

1 

13 

Timber   

70 

30 

30 

20 

70 

60 

47 

Leather    

70 

25 

25 

20 

70 

40 

62 

Meat    

110 

100 

100 

155 

90 

120 

113 

Cotton     

110 

30 

25 

100 

20 

20 

51 

Sundries     .  .  .  . 

150 

365 

370 

260 

320 

258 

195 

1000   1000   1000   1000 


The  earlier  writers  appear  to  have  drawn  broad  lines  without 
detailed  investigations  of  relative  consumption.  Mulhall  ob- 
serves that  four  writers  took  no  account  of  coal.  There  seems 
to  have  been  no  good  reason  for  inserting  indigo  and  palm- 
oil,  which  are  items  of  trifling  value,  while  fish,  lard,  rice, 
potatoes,  and  other  important  articles  are  omitted.  Another 


THE   MULTIPLE   STANDARD. 


131 


feature  that  seems  inexplicable  is,  that  four  of  the  above 
writers  give  barley  the  same  relative  importance  as  wheat, 
whereas  the  latter,  according  to  statistics  of  consumption, 
should  have  three  times  the  weight  of  the  former.  A  similar 
remark  applies  to  oats,  which  should  stand  for  only  half  the 
value  of  wheat. 

The  Aldrich  Committee  made  a  strong  effort  to  arrive  at 
accurate  conclusions  respecting  the  relative  consumption  of 
various  commodities  by  the  average  family.  Table  XVIII. 
from  p.  61,  of  Vol.  1  ,  of  the  said  Report  gives  the  average 
consumption  of  2,561  "normal"  families,  and  Table  XIX, 
from  pp.  62-3,  shows  the  average  consumption  of  various  ar- 
ticles by  232  families. 

TABLE  XVIII. 
Proportions  of  10,000. 

Rent   1,506 

Food  4,103 

Fuel    500 

Clothing    . 1,531 

Light    90 

All  other  purposes    2,270 

Total    10,000 

TABLE  XIX. 

GROUP   FOOD. 

Per  family.        Proportion  of 
10,000 

Beef     $40.95  1,561 

Hog  products    17.20  655 

Meat  (kinds  not  specified) 16.10  614 

Poultry    2.78  106 

Fish  2.97  113 

Eggs    8.28  316 

Milk     15.02  572 

Butter    29.04  1,107 

Cheese    1.73  66 

Tea    4.51  172 

Coffee    13.97  532 

Sugar    16.69  636 

Molasses    1.44  55 

Lard    5=27  201 

Flour  and  meal 28.62  1,022 

Bread    11.42  436 

Rice   .62  24 

Fruit 8.80  332 

Potatoes     11.92  454 

Vegetables  (kinds  not  specified) . .  12.55  479 

Vinegar,  pickles,  condiments  ....  1.86  71 

Food   (not  specified)    12.47  476 

Total     262.42  10,000 

10 


132 


THE   MULTIPLE   STAUTDAKD. 


TABLE  XIX— Continued. 

CLOTHING. 

Per  family.        Proportion  »  f 

Husband:  10>000 

Coats,  vests,  trousers,  overcoats..         $14.11  1,407 

Boots  and  shoes 4.71  470 

Hats     1.73  173 

Underclothes    2.75  274 

Shirts    1.49  149 

Miscellaneous    9.01  898 

33.80  3,371 

Wife: 

Dresses,  cloaks  and  shawls 8.26  824 

Boots  and  shoes    3.56  354 

Underclothes   2.55  254 

Miscellaneous    8.39  836 

22.76  2.268 

Children: 

Coats,  etc.   .., 6.10  608 

Dresses,  etc.     6.59  657 

Boots  and  shoes  7.76  774 

Hats    2.78  277 

Underclothes    2.96  295 

Shirts    .31  31 

Miscellaneous    17.25  1,719 

4b.,'5  4,361 

Grand  total    100.31  10,000 

MISCELLANEOUS    EXPENSES. 

Per  family.        Proportion  of 
2,270 

Taxes    $8.34  115. 

Insurance    10.98  151. 

Organizations    4.82  66. 

Religion     6.71  92. 

Charity     1.77  24. 

Furniture  and  utensils   18.36  253. 

Books  and  newspapers  7.27  100. 

Amusements    6.68  92. 

Intoxicants     12.14  168. 

Tobacco   7.71  107. 

Illness  and  death 24.36  335 

Other  purposes 55.64  767. 


164.78 


2,270 


It  would  be  a  simple  matter  to  request  families  and  indi- 
viduals to  send  in  sworn  statements  of  the  relative  amounts 
annually  spent  by  them  for  different  purposes.  And  these 
data,  together  with  the  figures  of  total  product,  plus  imports 


THE   MULTIPLE   STANDARD.  133 

and  minus  exports,  and  the  records  of  wholesale  and  retail 
rates  would,  in  the  course  of  a  few  years,  afford  a  very  ac- 
curate idea  of  the  relative  expenditure  for  various  commodi- 
ties both  at  wholesale  and  retail.  It  will  not  be  best  to  rely 
on  wholesale  prices  alone.  Retail  prices  are  steadier  than 
wholesale,  and  it  is  retail  rates  that  the  average  buyer  has  to 
pay.  Retail  prices  largely  govern  the  household  expenditure 
of  the  average  family,  and  should  have  due  weight  in  the 
standard,  as  well  as  the  wholesale  rates  involved  in  the  ex- 
penditures of  merchants  and  business  men. 

Our  standard  then  is  to  be  made  up  (1)  of  the  largest  prac- 
ticable number  of  commodities  (using  the  word  in  its  broad 
sense),  (2)  weighted  according  to  importance  in  ordinary  con- 
sumption. We  are  to  prefer  (3)  commodities  largely  bought 
and  sold.  (4)  Commodities  that  are  independent  of  each 
other..  (5)  Commodities  capable  of  accurate  definition  as  to 
quantity  and  quality.  (6)  Commodities  regularly  quoted  in 
the  public  prints.  (7)  Our  commodities  should  be  taken 
partly  from  the  class  that  is  Subject  to  the  law  of  diminishing 
return  and  partly  from  the  class  not  subject  to  this  law,  the 
choice  being  made  so  as  to  fairly  represent  each  class  in  the  pro- 
portion it  bears  to  total  consumption.  (8)  Commodities  whose 
prices  vary  much  must  be  taken  as  well  as  those  that  vary  little, 
for  men  and  women  have  to  use  their  dollars  to  buy  both,  and 
dollars  are  not  steady  in  their  purchasing  power  unless  they 
are  steady  in  reference  to  the  average  of  all  the  purchasing 
to  be  done  with  them.  Moreover  a  commodity  whose  price 
varies  greatly  may  be  nearer  steady  with  average  commodity 
values  than  a  commodity  whose  price  varies  little.  Slight  var- 
iation of  price  (on  the  gold  basis,  as  at  present)  means  that 
the  commodity  moves  with  gold,  and  that  means  that  the  com- 
modity does  vary  greatly  from  the  general  commodity  base. 
The  moon  does  not  vary  in  distance  from  the  earth  so  much 
as  Venus,  but  it  varies  in  its  distance  from  the  sun  much 
more  widely  than  Venus.  (9)  Prices  must  be  registered  in 
all  the  principal  markets  of  the  country.  And  (10)  the  aver- 
ages for  the  chosen  commodities  must  be  tabulated  and  pub- 
lished periodically. 


134 


THE   MULTIPLE   STANDARD. 


Let  us  now  select  a  dozen  commodities  and  illustrate  the 
working  of  the  multiple  standard.  Suppose  that,  on  the  aver- 
age of  ordinary  expenditures  for  every  $100  spent  for  beef, 
pork,  mutton  and  other  meats,  $75  are  spent  for  butter, 
cheese,  milk  and  cream,  $20  for  sugar,  $20  for  tea  and  coffee, 
$50  for  wheat,  $25  for  oats,  $20  for  fruit,  $60  for  coal,  $30 
for  leather,  $20  for  cotton,  $30  for  wool,  $50  for  iron,  steel, 
lead,  copper,  tin,  silver,  gold,  etc.,  and  $50  for  wooden  uten- 
sils, furniture,  etc.  In  the  first  column  we  write  the  names 
of  the  commodities  or  groups  of  commodities  selected  for  the 
standard;  in  the  second  column  we  place  the  numbers  just 
mentioned  representing  the  relative  importance  of  the  said 
commodities  in  average  consumption;  in  the  third  we  write 
the  prices  of  the  commodities  per  unit  of  volume  or  weight; 
and  in  the  fourth  column  we  write  the  weights  or  volumes 
that  would  be  required  at  the  said  prices  to  equal  the  amounts 
in  the  second  column.  For  example,  if  the  market  price  of 
meat  averages  $10  per  hundred  weight  it  would  require  10 
hundred  weight  to  amount  to  the«  $100  spent  for  meat,  where- 
fore 10  cwt.  is  the  item  in  the  fourth  column  opposite  meat. 
In  the  same  way,  if  $50  represents  the  relative  amount  spent 
for  wheat,  and  wheat  is  $1  a  bushel,  the  quantity  of  wheat 
bought  will  be  50  bushels. 

TABLE    XX. 

MULTIPLE   STANDARD. 
123  4 

Meat    $100  $10.     per  cwt. 

Butter,  milk,  ete. .  75  15.    per  cwt. 

Sugar    20  4.     per  cwt. 

Coffee  and  tea 20  20.     per  cwt. 

Wheat     50  1.     per  bush. 

Oats   25  1.5  per  cwt. 

Coal    60  3.     per  ton. 

Leather    30  20.     per  cwt. 

Cotton     20  10.     per  cwt. 

Wool    40  40.    per  cwt. 

Metals   50  2.5  per  cwt. 

Wood 50  25.     per  cwt. 

$540 

The  quantities  in  the  fourth  column  with  their  total  value 
$540  constitute  the  composite  or  multiple  standard.4 


10  cwt.  meat. 
5  cwt.  dairy  products. 
5  cwt.  sugar. 

1  cwt.  coffee  &  tea. 
50  bushels  wheat. 

17  cwt.  oats. 
20  tons  coal. 
iya  cwt.  leather. 

2  cwt.  cotton. 

1  cwt.  wool. 
20  cwt.  metals. 

2  cwt.  wood. 


(*)  Different  units  of  weight  and  measure  are  used  to  show  that  no  uni- 
formity  in   this  respect  is   requisite.    Some   of  the   items  in   this  table  are 


THE   MULTIPLE   STANDARD.  135 

These  quantities  are  made  the  standard  just  as  the  law  now 
makes  23.22  grains  of  gold  the  standard  for  a  dollar.  In  the 
real  work  of  the  Commission  the  prices  of  the  third  column, 
instead  of  being  the  current  rates  at  the  time  of  putting  the 
system  into  effect,  might  be  the  averages  for  5  or  10  years  so 
as  to  bring  the  dollar  to  a  level  representing  its  past  average 
for  the  time  during  which  existing  debts  and  obligations  were 
contracted.5 

The  Multiple  Standard  being  made  and  published  as  above 
suggested,  let  us  now  make  up  our  first  report  on  the  condition 
of  prices  and  the  currency.  We  place  in  column  A  the  quan- 
tities from  column  4,  Table  XX,  which  compose  the  standard. 
In  column  B  we  write  the  average  prices  obtained  from  the 
market  records  of  New  York,  Chicago,  etc.,  during  the  past 
month.  In  column  C  appear  amounts  obtained  by  multiply- 
ing the  quantities  of  column  A  by  the  prices  of  column  B. 

TABLE  XXI 

A  B  C 

Meat,  10  cwt $9  per  cwt.  $90 

Dairy,  5  cwt 14  per   cwt.  70 

Sugar,  5  cwt   4  per  cwt.  20 

Coffee  and  tea,  1  cwt 20  per  cwt.  20 

Wheat,  50  bush 0%  per  bush.  37.5 

Oats,  17  cwt 1  per  cwt.  17 

Coal,  20  tons   4  per  ton.  80 

Leather,  1%  cwt 22  per  cwt.  33 

Cotton,  2  cwt 10  per  cwt.  20 

Wool,  1  cwt 38  per  cwt.  38 

Metals,   20  cwt -2  per  cwt.  40 

Wood,  2  cwt 26  per  cwt.  52 


$517.5 


definite  nncl  simple,  but  others  are  complex.  The  item  "metals,"  for 
example,  is  made  up  of  iron,  steel,  lead,  tin,  copper,  zinc,  gold,  silver,  etc. 
If  tin  be  taken  as  the  unit  of  consumption,  zinc  will  be  about  5,  lead  and 
copper  each  20,  iron  600,  silver  1-10,  and  gold  1-100,  so  that  altho  gold  costs 
thirty  thousand  times  as  much  as  iron,  yet  as  there  is  60,000  times  as  much 
Iron  used  as  gold,  the  effect  of  iron  upon  the  metal  average  is  double  that  of 
gold.  Meat,  dairy  products  and  other  items  are  also  composite.  For  the  sake 
of  easy  checking  by  the  public  it  would  be  best  to  require  the  Commission 
to  state  each  separate  item,  pig  iron,  gold,  silver,  lead,  beef,  pork,  mutton, 
granulated  sugar,  etc.,  clearly  defining  the  precise  grade  of  quality  of  every 
item.  We  have  bunched  some  items  in  order  to  save  space  and  avoid  too 
much  detail. 

(5)  It  would  be  best  also  to  consider  retail  prices  and  the  distribution  of 
final  expenditure  as  well  as  wholesale  prices  and  relative  wholesale  expendi- 
ture or  proportional  amounts  of  total  product,  or  else  transportation  and  the 
cost  of  distributing  products  should  be  entered  as  specific  items  with  their 
due  weight.  The  price  and  relative  importance  of  commodities  at  retail 
could  be  entered  in  the  table  along  with  the  price  and  relative  importance  of 
the  same  commodities  at  wholesale,  the  retail  and  wholesale  items  being 
weighted  so  as  to  have  the  same  relation  to  each  other  that  exists  in  the 
retail  and  wholesale  trade.  It  has  been  customary  to  rely  on  wholesale 
prices  alone;  but  this  does  not  seem  wise  or  just. 


136  THE    MULTIPLE    STANDARD. 

A  comparison  of  the  footing  of  column  C  with  the  total 
value  in  the  original  or  standard  table  (XX)  shows  that  the 
price  level  of  the  standard  commodities  has  fallen  from  $540 
to  $517.5 — $22.5  or  4.46  per  cent,  below  the  normal  level. 
Interest  would  therefore  fall  a  notch  or  two  at  the  Postal 
Savings  Banks,  or  the  Government  would  buy  securities,  or 
call  in  and  pay  off  some  bonds;  or  if  interest  were  left  to  pri- 
vate adjustment,  it  would  go  up  and  Goverment  bonds  would 
begin  to  come  in  of  themselves.  Any  one  of  these  moves 
would  increase  the  volume  of  money  and  tend  to  bring  prices 
up  to  the  normal  level  again.  Precisely  how  much  increase 
of  volume  would  be  necessary  to  effect  a  given  alteration  in 
the  price  level  under  given  conditions  could  only  be  ascer- 
tained by  experience. 

At  the  end  of  the  second  month  we  would  make  out  another 
table,  and  if  the  price  level  were  still  below  the  normal  level 
we  would  further  increase  the  money  volume.  If  prices  had 
gone  above  the  normal  we  would  decrease  it.  And  so  month 
after  month  we  would  check  the  rise  or  fall  of  prices  and  keep 
the  dollar  very  close  to  the  line,  now  a  little  above,  now  a 
little  below,  but  never  soaring  into  the  clouds  or  falling  thru 
long  years  of  ruin  and  despair. 

Every  year  or  so  the  weighting  of  the  standard  commodities 
should  be  tested,  and  if  it  is  found  that  their  relative  im- 
portance has  changed,  the  weighting  should  be  corrected. 

It  is  entirely  possible  to  adjust  our  standard  table  so  that 
the  normal  sum  of  values  shall  be  an  even  number  like 
$100,000  or  $100  or  $1.  For  example,  take  Prof.  Smith's 
table  of  total  annual  product  of  corn,  wheat,  cotton,  oats, 
silver  and  gold  and  the  wholesale  value  of  each. 

TABLE  XXII. 

P  Q  R 

Commodity                 Quantity.                   Wholesale  Wholesale. 

Price.  Value. 

Corn 1,600,000,000  bush.           $0.50  per  bush.  $800,000,000 

Wheat 500,000,000  bush.             1.00  per  bush.  500,000.000 

Cotton 3,500,000,000  Ibs.                   .10  per  Ib.  350,000,000 

Oats 625,000,000  bush.               .40  per  bush.  250.000,000 

Silver 70,000,000  oz.                  1.00  per  oz.  70,000,000 

Gold 1,450,676  oz.                20.68  per  oz.  30,000,000 

Total    .  $2,000,000,000 


THE   MULTIPLE   STANDARD.  137 

Now  suppose  we  wish  to  make  a  composite  standard  that 
will  have  a  value  of  $100.  The  value  of  corn  in  column  S 
is  eight-twentieths  or  two-fifths  of  the  total  value  of  all  the 
products  represented.  Corn  would,  therefore,  occupy  two- 
fifths  of  the  standard,  or  $40  (two-fifths  of  -$100  the  total 
value  to  be  covered  by  the  standard).  Wheat  is  five-twen- 
tieths or  one-fourth  of  the  total  in  column  S,  wherefore  giving 
wheat  the  same  relative  importance  in  the  standard  that  it 
has  in  the  table  of  annual  production  and  consumption,  it 
would  appropriate  one-fourth  or  $25  of  the  $100  chosen  for 
the  standard  total.  Treating  the  other  commodities  in  the 
same  way,  and  dividing  the  value  of  each  that  enters  into  the 
standard  by  the  price  of  each  per  bushel,  pound  or  ounce,  we 
get  the  quantity  of  each  that  enters  into  the  standard. 

TABLE  XXIII. 
U  V  W  X 

Value  of  it  Quantity  that 

Commodity       that  enters  Price.                       enters  the 
tne  standard.                                                 standard. 

Corn     $40  $0.50  per  bush.  80      bush.  corn. 

Wheat  25  1 00  per  bush.  25      bush,  wheat. 

Cotton     17.5  .10  a  Ib.  175      Ibs  cotton. 

Oats     12.5  .40  per  bush.  31%  bush.  oats. 

Silver    3.5  1.00  per  oz.  3y2  oz.  silver. 

Gold     1.5  20.68  per  oz.  34  1-3  grs.  gold. 


Total   $100 

At  the  end  of  each  month  or  tabular  period  we  take  the 
standard  quantities  in  column  X,  multiply  by  the  new  average 
price  per  bushel,  pound  or  ounce,  which  emerges  from  the 
records  of  the  month,  and  add  the  products  to  find  how  much,  if 
any,  the  average  level  of  prices  has  varied  from  the  $1 00  nor- 
mal value  of  the  standard.  These  processes  carried  out,  not 
merely  with  half  a  dozen  or  a  dozen  commodities,  but  with  one 
or  two  hundred  well  chosen  items,  would  afford  a  rational 
basis  for  a  scientific  money  system. 

MASSACHUSETTS   MULTIPLE   MONEY. 

It  is  interesting  to  know  that  Massachusetts,  more  than  a 
century  ago  adopted  a  multiple  standard  as  the  basis  of  notes 


138  THE   MULTIPLE   STANDARD. 

issued  to  settle  balances  due  to  the  State's  quota  of  the  Con- 
tinental Army.  The  law  regulated  the  value  of  the  notes  by 
the  value  of  a  composite  standard  composed  of  fixed  quanti- 
ties of  corn,  beef,  wool  and  sole  leather.  The  standard 
adopted  was  5  bushels  of  corn,  plus  68  4-7  pounds  of  beef, 
plus  10  pounds  of  sheep's  wool,  plus  16  pounds  of  sole  leather, 
equals  £130. 

On  the  following  page  is  a  fac- simile  of  one  of  the  notes 
issued  in  1T80.6 

OBJECTIONS. 

The  chief  objections  likely  to  be  raised  against  the  Multiple 
Standard  are  political,  international,  or  selfish.  To  the  claim 
that  it  is  dangerous  to  entrust  the  Government  with  the  power 
of  regulating  the  currency,  we  reply : 

First:  That  the  power  is  already  entrusted  to  the  Govern 
men ;  and  not  only  that,  but  the  decisions  of  the  Supreme  Court 
make  it  clear  that  the  trust  is  a  mandatory  one.  The  Federal 
Constiution  makes  it  the  duty  of  the  National  Government  to 
regulate  the  currency,  and  a  trustee  does  not  fulfil  his  duty 
unless  he  uses  the  best  available  means  to  carry  out  his  trust. 
"Not  only  does  the  Government  possess  the  power  of  issuing 
and  regulating  money,  but  it  has  exercised  the  power  to  great 
advantage,  even  tho  the  plan  adopted  was  far  from  perfect. 
The  war  paper  was  a  marked  success.  Only  when  we  began  to 
retire  it  in  order  to  go  back  to  gold  did  disaster  overtake  us. 

Second.  The  automatic  action  of  the  system  will  of  itself 
keep  the  variations  of  prices  within  narrow  limits.  Even  if  no 
onicial  were  empowered  to  increase  or  diminish  the  currency, 
the  new  standard  would  be  a  great  gain. 

Third.  The  publicity,  definiteness  and  importance  of  the 
standard  and  its  operation  would  constitute  a  strong  protection 
against  fraud.  As  Hon.  Henry  "Winn  says:  "The  commis- 
sion would  hang  out  a  barometer  of  monetary  value  whereby 
all  men  could  see,  not  only  what  the  government  ought  to  do, 
but  what  it  was  actually  doing,  and  whether  it  was  acting 


(8)  rpjje  note  itseif  is  the  property  of  Hon.  Henry  Winn,  and  was  by  his 
courtesy  reproduced  in  The  Arena  for  September,  1897,  in  illustration  of  a 
paragraph  in  Mr.  Eltweed  Porneroy's  article  in  that  number  of  the  magazine. 


THE    MULTIPLE    STANDARD. 


139 


B^v&P-slr.S*-*     \ 
z  l^^iSllii     > 

3      tf     «S13».»*=uJ<3rr          ^ 


C    •'-*w^JSL-vja'       v  x.  v 

I S 5 P^^^^^   A^ 

lls'lll^g/^ 


140 


THE   MULTIPLE   STAITOAKD. 


honestly.  There  could  be  no  fraud  in  that  barometer,  for 
every  trade  paper  gives  the  prices,  and  any  man  could  detect 
an  error  in  the  printed  data  of  the  commission,  and  discover 
the  true  index  number.  That  a  people  accustomed  to  a  price 
barometer,  and  knowing  that  it  ought  and  could  be  kept  close 
to  100,  would  permit  their  money,  as  ours  has,  to  grow  so  bad 
that  it  would  stand  at  170,  or  200,  is  almost  unthinkable." 

Fourth.  It  could  be  enacted  that  debts  should  be  payable  at 
standard  values,  no  matter  whether  the  money  was  at,  or 
above,  or  below  the  standard.  This  would  remove  the  prin- 
cipal motive  that  executive  officers  and  others  in  power  might 
have  to  fail  in  their  duty  of  keeping  the  dollar  level.  Such  a 
provision  would  also  make  it  very  greatly  to  the  interest  of 
both  debtors  and  creditors  that  the  dollar  should  be  kept 
normal,  since  neither  could  gain  by  an  abnormal  dollar,  and 
the  settlements  would  be  much  simplified  by  keeping  the  dol- 
lar steady.  These  great  classes  would  therefore  bring  a_strong 
pressure  to  bear  in  favor  of  a  level  dollar.  A  similar  pressure 
would  come  from  those  who  receive  and  pay  salaries.  If  the 
dollar  went  below  the  line,  the  former  would  be  injured;  if 
above,  the  latter  would  be  damaged.  The  said  provision 
would  further  have  the  effect  of  bringing  the  standard  into 
court,  and  subjecting  it  and  its  management  to  the  most  in- 
tense scrutiny.  The  provision,  however,  might  detract  some- 
what from  the  smoothness  and  facility  of  commerce,  and 
would,  we  think,  be  quite  unnecessary  in  view  of  the  fact  that 
the  automatic  features  of  the  plan  would  at  the  most,  leave  but 
a  very  narrow  margin  to  official  action. 

Fifth.  iNo  monetary  control  would  be  exercised  by  the 
Government  that  is  not  far  more  dangerous  where  it  is  to-day. 
No  public  control  of  money  can  be  so  dangerous  as  private 
control.  The  agents  of  the  people  acting  under  definite  pro- 
visions of  law,  and  under  the  public  eye,  will  surely  do  better 
than  chance  and  Wall  Street. 

Another  objection  that  may  be  made  is  that  the  multiple 
standard  (especially  if  linked  with  a  system  of  Postal  Savings 
Banks  as  it  ought  to  be)  will  interfere  with  the  profits  of 
private  banking.  This  objection  is  likely  to  be  far  the  most 


THE   MULTIPLE    STANDARD. 


1.4L 


difficult  to  overcome.  In  fact  it  is  the  only  one  that  has  any 
real  vitality  or  resisting  power.  And  the  answer  that  private 
interests  must  yield  to  public  is  not  apt  to  be  satisfactory  to 
the  men  whose  private  interests  are  affected.  These  men  have 
a  powerful  grip  on  affairs  of  state,  and  their  opposition  is  no 
child's  play.  All  private  profits  on  the  circulation  of  bank 
notes  will  cease,  and  the  Postal  Banks  will  be  so  much  safer 
than  private  banks  that  they  may  absorb  a  large  proportion  of 
deposits.  This  fact,  together  with  loans  at  low  interest,  and 
the  facilities  and  safety  of  transmitting  money  thru  an  institu- 
tion with  an  office  in  every  town  and  having  the  entire  wealth 
and  power  of  the  nation  back  of  it,  would  be  likely  to  con- 
siderably diminish  the  business  of  private  banks,  and  might, 
in  the  course  of  a  few  years,  make  private  banking  quite  un- 
profitable. The  Multiple  system  could  be  adopted  without 
Postal  Banks  and  would  then  very  slightly  affect  the  legiti- 
mate business  of  private  banks.  This  might  be  a  good  way 
at  first,  but  to  bring  the  plan  to  its  full  perfection  Postal  Banks 
must  be  ultimately  established,  and  it  is  not  improbable  that 
we  may  in  fact  get  the  Postal  Banks  before  we  achieve  the 
Multiple  Standard;  and  if  so,  their  establishment  will  greatly 
facilitate  the  introduction  of  the  Multiple  Standard.  Beyond 
question  there  is  force  in  the  objection  that  a  good  money  sys- 
tem would  be  dangerous  to  the  banks.  But  the  all  sufficient 
answer  is  that  individual  profit  must  yield  to  the  public  good.7 
If  the  matter  be  examined  on  a  plane  above  mere  dollars  and 
cents,  the  Multiple  Standard  will  benefit  even  the  bankers;  for 
as  men  and  citizens  their  interests  are  identical  with  the  wel- 
fare of  their  country. 

The  objection  chiefly  relied  on  in  the  public  utterances  of 
those  who  oppose  an  independent  money,  is  that  the  discon- 
tinuance of  a  metallic  standard  would  disturb  our  interna- 
tional relations,  and  injure  our  foreign  commerce,  it  being 
affirmed  that  to  carry  on  foreign  trade  to  good  advantage  re- 
quires a  money  that  will  pass  in  Europe.  As  a  matter  of  fact, 
however,  foreign  payments  are  not  made  in  money,8  and  if 

O  Justice  Strong  delivering  the  opinion  of  the  U.  S.  Supreme  Court  in 
the  famous  Legal  Tender  Cases,  said  "A  new  tariff,  an  embargo,  a  draft,  or 
a  war  may  inevitably  bring  upon  individuals  great  losses;  may,  indeed, 


142  THE   MULTIPLE   STANDARD. 

they  were,  it  is  probable  that  our  independent  paper  would  be 
taken  in  Europe  at  its  face  value,  less  brokerage  and  transpor- 
tation, just  as  readily  as  our  metallic  money.  Practically  the 
whole  of  our  foreign  commerce  is  carried  on  by  means  of  bills 
of  exchange.  Balances  are  settled  with  commodities;  when 
gold  is  used  it  is  used  as  a  commodity,  not  as  money ;  as  bullion, 
not  as  coin.  It  could  be  used  in  the  same  way,  no  matter  what 
sort  of  a  home-currency  we  had.  If  it  could  not  be  had  in  this 
country,  a  cargo  of  wheat,  beef,  cotton,  or  other  commodity 
could  be  sent  over  the  sea,  sold  in  Europe  for  coin  or  bullion 
or  bills,  and  the  debt  settled  with  that.  Such  shipments  of 
commodities  are  the  fundamental  facts  in  international  com- 
merce. It  is  upon  such  facts  that  bills  of  exchange  are  based. 
Foreign  exchanges  would  go  on  all  right  without  an  ounce  of 
gold.  We  were  on  a  paper  base  for  17  years  during  and  after 
the  war,  and  our  merchants  did  not  mention  any  inconven- 
ience resulting  therefrom  in  their  trade  with  other  nations. 
Russia  is  on  a  paper  basis  now,  but  her  commerce  is  not  dis- 
turbed by  that  fact.  Silver  countries  trade  with  gold 


render  valuable  property  almost  worthless.  They  may  destroy  the  worth  of 
contracts.  But  whoever  supposed  that  because  of  this,  a  tariff  could  not  be 
changed,  or  an  embargo  enacted,  or  a  war  declared."  (12  Wallace  at  551.) 
The  Justice  also  instanced  the  damage  that  may  be  done  to  creditors  by 
passing  a  bankrupt  act  (p.  549).  We  might  mention  the  grant  of  a  franchise 
that  partly  or  wholly  destroys  the  value  of  a  former  grant  or  business.  When 
a  bridge  or  railway  franchise  is  not  expressly  made  exclusive,  a  new  bridge 
or  railway  may  be  built  or  authorized  by  the  state,  tho  the  value  of  the 
former  franchise  is  thereby  completely  destroyed.  (Charles  River  Bridge  v. 
Warren  Bridge,  7  Pick.,  344;  11  Peters,  420,  536,  546,  549;  Turnpike  Co.  v. 
State,  3  Wallace,  210.) 

(8)  Mr.  Fonda  says  in  "Honest  Money:"  "International  trade  is  an  ex- 
change of  commodities;  not,  to  be  sure,  a  direct  barter,  but  an  indirect  one. 
*  *  It  would  make  no  difference  in  the  foreign  trade  of  any  country  if  it 
did  not  possess  an  ounce  of  gold  or  of  silver,  or  whether  its  money  was  based 
on  gold  or  was  inconvertible  paper."  Walter  Bagehot,  in  "A  Universal 
Money,"  says  that  the  rates  of  exchange  are  not  determined  by  the  nature 
of  the  currency,  but  by  the  relative  AMOUNTS  of  the  settlements  to  be  made 
in  each  direction  between  the  two  countries.  "If  France  and  America  had 
the  same  currencies  as  England,  it  would  still  happen,  as  now,  that  bills  on 
Paris  or  New  York  would  be  at  a  discount  or  a  premium.  The  amount  of 
money  wishing  to  go  eastward  across  the  Atlantic,  and  the  amount  wishing 
to  go  westward,  would  then,  as  now,  settle  how  much  was  to  be  paid  in 
London  for  bills  on  New  York,  and  how  much  was  to  be  paid  in  New  York  for 
bills  on  London."  In  the  Medical  World  for  October,  '97,  Dr.  C.  F.  Taylor 
says:  "With  paper  money  on  a  multiple  standard  our  foreign  exchanges 
would  be  conducted  just  as  they  are  now.  *  *  The  value  of  each  com- 
modity would  be  calculated  on  the  basis  of  its  real  value,  first  in  the  medium 
of  its  own  country,  and  then  translated  into  the  other  according  to  the  ex- 
change value,  which  is  governed  by  laws  of  comparative  values,  and  is  never 
difficult  to  discover.  Bills  of  exchange  are  emitted  by  dealers  in  foreign 
exchange,  on  the  basis  of  the  comparative  value  of  the  two  mediums,  each 
in  its  own  country.  Our  money,  of  whatever  kind,  is  worth  in  a  foreign 
country  just  what  it  is  worth  here,  less  brokerage  and  transportation." 

In  his  "Recent  Economic  Changes,"  Mr.  David  A.  Wells  cites  the  testi- 
mony of  members  and  directors  of  English  Chambers  of  Commerce  to  the 
effect  that  there  is  no  difficulty  in  negotiating  exchange  or  conducting  foreign 
trade  between  silver  countries  and  gold  countries. 


THE   MULTIPLE   STANDARD.  143 

countries  without  any  difficulty.  The  rates  of  exchange  vary 
somewhat  from  time  to  time,  but  so  they  do  between  New 
York  and  London,  which  have  the  same  standard,  and  between 
Great  Britain  and  Australia,  which  not  only  have  the  same 
standard,  but  the  same  money  unit. 

Even  if  it  were  true  that  independent  money  would  be 
detrimental  to  foreign  commerce,  the  objection  would  have 
but  little  weight  as  against  the  advantage  of  such  money  to 
domestic  commerce,  since  the  latter  forms  96  per  cent,  of  our 
total  business  against  only  4  per  cent,  foreign  trade. 

The  truth  is  that  an  independent  money,  instead  of  being  a 
disadvantage  in  respect  to  our  foreign  relations,  would  be  of 
the  greatest  service  in  shutting  out  foreign  panics,  and  freeing 
us  from  the  disturbing  influence  of  changes  in  foreign  markets, 
mines  and  Governments.  The  disastrous  crises  of  1825  and 
1837  came  to  us  from  over  the  sea.  It  was  the  fall  of  prices 
and  failure  of  banks  in  Great  Britain  that  deranged  our 
finances.  We  were  on  a  metallic  base.  The  appreciation  of 
the  metallic  standard  there  caused  an  appreciation  of  it  here, 
and  money  became  harder  to  get,  instead  of  taking  the  place  of 
retiring  credit.  But  in  1866  a  very  severe  panic  occurred  in 
England  without  affecting  our  industries  to  any  perceptible 
degree,  because  we  were  on  an  independent  paper  basis,  and  a 
change  in  English  prices  and  the  value  of  the  English  standard 
did  not  disturb  the  value  of  our  currency  at  all.  Hon.  Henry 
Winn,  in  a  magazine  article  soon  to  appear,  has  a  fine  passage 
on  this  point,  which  he  has  kindly  allowed  me  to  quote.  "To- 
day every  foreign  panic  or  corner  in  gold,  every  state  buying 
to  hoard,  draws  away  gold  from  our  money  volume  and  de- 
ranges by  fluctuation  in  price  our  domestic  exchanges.  We 
remember  how  prices  tumbled  and  we  were  thrown  into  panic 
conditions  thru  sympathy  with  London  when  the  Barings 
failed  in  1890.  But  in  1866  when  we  were  on  an  indepen- 
dent paper  standard,  a  panic  fell  on  London  so  much  more 
severe  that  the  bank  act  was  suspended  for  the  Bank  of  Eng- 
land. It  sent  up  the  price  of  gold  here  of  course,  but  it  caused 
hardly  a  ripple  in  our  domestic  trade.  Martin,  in  his  'His- 
tory of  the  Boston  Stock  Market/  boasts  that  in  June,  1866 


144  THE   MULTIPLE   STAITOARD. 

money  stood  at  5  to  6  per  cent.,  actually  1  per  cent,  cheaper 
than  the  month  before,  and  was  'abundant  while  the  bank  rate 
in  London  was  10  per  cent.9  and  a  panic  in  the  market.'  The 
lowest  quotations  for  railroad  stock  were  far  higher  than  the 
year  before,  and  the  dividends  of  Massachusetts  factories 
showed  wonderful  prosperity." 

In  the  very  matter,  therefore,  mainly  relied  on  for  the  sup- 
port of  the  gold  standard,  we  find  that  independent  paper  is 
superior.  It  would  be  an  excellent  thing  to  have  an  interna- 
tional money,  if  the  various  nations  involved  would  adopt  the 
multiple  standard;  but  until  that  time  arrives  there  will  be  an 
immense  advantage  in  having  a  separate  standard — a  standard 
that  will  keep  on  the  even  tenor  of  its  way  regardless  of 
foreign  crises  and  contingencies.  We  must  never  forget  that 
the  fundamental  fact,  the  prime  requisite,  the  crucial  test  of 
good  money  is  steadiness  of  value.  As  Professor  Smith  re- 
marks, "No  argument  for  international  money  is  sound  which 
fails  to  recognize  that  the  first  requisite  of  a  good  monetary 
system  is  steadiness  of  value." 

ADVANTAGES. 

The  Multiple  Standard  will  be  just. 

It  will  not  defraud  labor. 

It  will  not  defraud  debtors. 

It  will  not  defraud  creditors. 

It  will  stop  the  waste  of  digging  gold  for  a  use  that  paper 
can  serve  at  almost  no  cost. 

It  will  free  $1,200,000,000  of  the  people's  capital  that  is 
now  locked  up  in  metallic  money.  This  gold  and  silver  could 
be  used  in  productive  industry,  or  sent  away  to  buy  American 
securities  held  abroad,  and  pay  American  debts  in  foreign 
countries,  relieving  us  of  a  considerable  burden  of  interest,  in- 
creasing the  volume  of  money  and  raising  prices  across  the 
water,  whereby  a  better  market  would  be  made  for  our  pro- 
ducts, and  a  bit  of  the  prosperity  that  comes  with  the  impetus 
of  rising  prices  would  be  introduced  into  Europe. 


(9)  The  ordinary  rate  of  the  Bank  of  England  is  2  or  3  per  cent. 


THE   MULTIPLE   STANDARD.  145 

It  would  check  gambling  and  speculation.  No  more  rock- 
ing of  our  finances  by  the  cornering  of  gold.  No  more  long, 
steep  slopes  of  rising  prices,  nor  financial  precipices,  with  their 
catastrophes  to  honest  industry  and  engorgements  of  parasites, 
and  beasts  of  prey. 

It  would  not  build  a  new  bonded  debt  thru  an  endless  chain 
of  withdrawing  gold  from  the  Treasury  with  Greenbacks,  pay- 
ing it  in  again  for  bonds,  and  again  withdrawing  it  till  the 
Government  has  to  issue  more  bonds  to  get  it  back,  and  so  on. 

It  would  not  subject  the  Government  to  the  ignominy  of 
hiring  a  foreign  syndicate  to  maintain  the  treasury  reserve, 
and  "preserve  the  faith  of  the  nation." 

It  would  not  make  the  war  debt  heavier  after  more  than 
two-thirds  of  it  had  been  paid  than  it  was  at  the  close  of  the 
struggle. 

It  would  ease  the  burdens  of  debt  without  injustice  to  the 
creditor,  by  enabling  the  debtor  to  avail  himself  of  inventions 
and  improvements  in  production  instead  of  bestowing  the 
whole  advantages  of  social  progress  upon  the  creditor,  as  gold 
with  its  falling  prices  does  now.  To  give  the  benefit  of  im- 
proved production  to  the  active  instead  of  the  passive  classes 
is  not  unjust,  but  very  distinctly  just. 

It  would  recognize  the  vast  importance  of  the  movement  of 
the  money  volume,  by  means  of  which  average  prices  may  be 
made  to  rise  or  fall,  or  remain  stationary,  and  it  would  subject 
this  movement  to  intelligent  control  in  the  public  interest  in- 
stead of  leaving  it  to  chance  and  private  manipulation. 

It  would  provide  a  practically  invariable  standard  of  value, 
and  a  medium  of  exchange  whose  variations  of  value  would  be 
slight.  The  trifling  departures  of  the  dollar  one  way  or  the 
other  from  the  standard  in  the  intervals  between  the  tabular 
reports  would  be  like  the  swelling  and  shrinking  of  a  steel 
ruler  under  changing  temperatures,  and  could  not  accumulate 
or  go  far  enough  to  materially  affect  the  truth  of  its  measure- 
ments in  exchange,  the  settlement  of  debt,  etc. 

It  would  afford  a  money  in  accord  with  common  sense  and 
scientific  principles — a  currency  capable  of  performing  all  the 
functions  of  money  with  reasonable  perfection. 


J46  THE   MULTIPLE   STANDARD. 

It  would  favor  prevision,  arid  so  increase,  the  steadiness  of 
business.  The  movement  of  prices  in  the  fall  caused  by  the 
annual  movement  of  the  crops  and  the  settlement  of  the  year's 
accounts  could  be  anticipated  and  prevented  by  an  increase  of 
the  currency  volume  in  September  or  October,  on  the  same 
principle  that  a  wise  manufacturer  prevents  overpressure  on 
his  engines  and  workmen  by  using  more  machines  and  em- 
ploying a  larger  force  when  ho  has  more  work  to  do. 

It  would  prevent  panics.  There  would  still  be  individual 
failures  and  possibly  local  flurries,  but  no  panics.  A  panic  is 
the  product  of  fear.  Something  makes  men  suspect  credit,  and 
it  shrinks.  Cash  instead  of  becoming  more  plenty  than  usual 
to  fill  the  place  of  the  departed,  takes  flight  itself.  It  be- 
comes  difficult  to  get  money  even  at  ruinous  interest.  To  pay 
their  debts  merchants  slaughter  prices,  and  widespread  ruin 
follows  the  fall.  "We  all  know  the  story.  It  is  lack  of  elastic 
money  that  turns  the  failure  of  a  few  speculators  into  a 
national  disaster.  Under  the  Multiple  Standard  the  Govern- 
ment will  stand  ready  at  all  times  to  furnish  any  amount  of 
money  necessary  to  prevent  the  fall  of  prices.  There  will  be 
no  money  famine,  no  big  interest,  no  need  for  men  really 
sound  to  sell  at  a  loss.  The  very  knowledge  that  the  Nation 
will  issue  funds  and  lend  money  at  a  reasonable  interest  in 
any  needful  quantity  will  prevent  the  fear  and  distrust  of 
the  future,  which,  makes  men  "  rush  into  the  market  and  out- 
vie each  other  in  selling  goods  at  a  loss." 

It  will  benefit  all  classes  of  the  community  except  the 
wreckers  and  parasites. 

It  will  carry  out  the  constitution,  destroy  a  dangerous  special 
privilege,  and  return  to  the  sovereign  people  as  a  real  posses- 
sion, one  of  the  most  important  of  sovereign  powers,  the  power 
of  issuing  and  regulating  the  money  of  the  country. 

It  will  be  as  good  in  war  as  in  peace.  The  multiple  dollar 
would  not  go  to  foreign  parts  in  time  of  danger,  but  it  would 
stay  at  home,  equip  our  armies,  and  go  with  the  cannon  to  the 
front  of  the  fight. 

It  would  free  our  financial  system  from  the  baneful  in- 
fluence of  foreign  disturbances.  Not  only  would  we  be  safe 


TEE   MULTIPLE   STAND  A&D. 

from  foreign  panics  and  the  vicissitudes  of  foreign  mines  and 
markets,  but  the  ups  and  downs  of  foreign  legislation  would 
affect  us  but  slightly  as  compared  with  the  present. 

It  would  operate  as  a  beneficient  influence  in  the  regulation 
of  industry  and  the  distribution  of  wealth.  Neither  land- 
lord nor  tenant,  laborer  nor  employer,  capitalist  nor  entre- 
preneur would  be  deceived  or  defrauded  by  it.  It  would 
beget  neither  feverish  excitement  nor  despair,  but  the  calm 
serenity  that  comes  with  certainty  of  prevision.  The  man  of 
enterprise  could  invest  his  money,  employ  his  workmen,  and 
make  his  contracts  with  assurance  that  his  calculations  would 
not  be  brought  to  nought  and  his  enterprise  be  wrecked  by  an 
unforseen  change  in  the  value  of  money. 

It  would  greatly  increase  the  wealth  of  our  people,  not 
merely  by  saving  the  waste  of  digging  gold  for  monetary  use 
and  part  of  the  waste  of  speculate  in,  but  by  putting  a  stop  to 
the  disastrous  panics  and  depressions  that  now  cripple  our 
productive  industries. 

Finally  the  Multiple  Standard  would  have  a  beneficient  in- 
fluence morally  and  socially.  Its  tendency  would  be  to  turn 
men  from  feverish  speculation,  and  to  relieve  in  some  degree 
the  pressure  of  financial  anxiety  for  the  future.  It  would 
tend  to  remove  one  of  the  great  antagonisms  of  interest  in 
society.  Social  cohesion  would  be  promoted,  and  a  frame  of 
mind  developed  more  favorable  to  thought,  to  art,  to  quiet 
home  life,  to  development  of  man  and  society  on  planes  above 
the  level  of  dollars  and  cents.  It  would  cancel  some  of  the 
causes  that  are  producing  undue  accumulation  of  wealth  and 
power  in  the  hands  of  a  moneyed  aristocracy,  would  tend  to- 
ward democracy  and  the  diffusion  of  wealth.  It  would  dispose 
of  one  of  the  great  questions  that  are  absorbing  the  attention  of 
the  people,  and  so  make  room  for  discussion  of  other  weighty 
problems  awaiting  decision.  In  every  way  it  would  tend  to- 
ward justice,  harmony,  equality  and  progress. 

11 


CHAPTEK  IV. 

THE   AUTHORITIES. 

Distinguished  leaders  of  thought,  eminent  economists,  illustrious 
statesmen,  renowned  jurists  and  famous  financiers  have  affirmed 
the  principles  on  which  this  book  is  based.  The  need  of  a  better 
monetary  system  rests  upon  two  propositions. 

1.  Tne     great     importance    of    steady    money — the    moral     and 
economic  need  of  a  dollar  of  unchanging  power  of  purchase. 

2.  The  unsteadiness  of  gold  and  silver. 

These   two    facts   are    affirmed   or   admitted   by   all   the   leading 
authorities. 
The  claims  of  the  Multiple  Standard  rest  upon  three  propositions. 

1.  The  importance  of  steadiness. 

2.  The  unsteadiness  of  a  metallic  standard. 

3.  The  steadiness  of  a  composite  commodity  standard. 

This  third  proposition  is  also  admitted  or  affirmed  by  all  authori- 
ties to  whom  the  thought  of  a  composite  standard  has  presented 
itself. 

The  establishment  of  a  money  that  shall  remain  constant  in  its 
purchasing  power  requires  the  co-ordination  of  the  dollar  and  the 
multiple  standard — the  incorporation  of  the  said  standard  in  the 
monetary  system  as  the  basis  of  the  circulating  medium,  and  in- 
volves four  propositions. 

1.  The  importance  of  steadiness. 

2.  The  unsteadiness  of  the  precious  metals. 

3.  The  steadiness  of  the  multiple  commodity  standard. 

4.  The  practicability  of  keeping  the  dollar  in  harmony  with  the 
multiple  commodity  standard  by  careful  regulation  of  the  money 
volume. 

The  fourth  proposition,  like  the  third,  is  affirmed  or  admitted  by 
all  authorities  conversant  with  any  of  the  methods  of  regulation 
proposed  in  the  last  chapter.  The  earlier  writers  dealing  with  the 
money  question  before  the  fourth  proposition  had  been  worked  out, 
do  not  take  the  final  step,  and  some  of  the  later  writers,  tho 
recognizing  the  fourth  proposition,  think  the  time  has  not  yet 
come  to  apply  it,  because  they  deem  the  Government  as  yet  unfit 
to  be  trusted  with  such  work.  This  plea  was  answered  in  the 
third  chapter,  but  even  if  there  were  no  answer  to  it,  even  if  there 
were  no  way  of  checking  the  work  so  that  it  would  be  safe  in  the 
hands  of  Government  officials  to-day,  still  the  plea  would  have  no 
force  as  against  the  multiple  money  system  as  such,  but  only 
against  its  immediate  adoption.  It  would  only  afford  an  additional 
reason  to  put  forth  every  effort  for  the  purification  of  Government 
so  that  it  may  be  fit  to  administer  a  rational  system  of  finance. 

Many  of  the  authorities  who  have  most  fully  discussed  the 
Multiple  Standard,  have  been  quoted  in  the  third  chapter.  We  will 
confine  our  attention  now  to  the  views  of  some  of  the 
most  widely  known  thinkers  who  have  not  been  dealt  with  suffi- 
ciently in  previous  chapters. 

PRESIDENT  WALKER. 

The  late  General  Francis  A.  Walker,  President  of  the  Massachu- 
setts Institute  of  Technology  and  former  Chief  of  the  Census,  was 
the  leading  American  economist,  and  our  foremost  writer  on  mone- 


AUTHORITIES. 


U9 


tary  science.  His  text-books  are  used  in  Oxford  on  an  equality  with 
the  writings  of  Professor  Alfred  Marshall. 

President  Walker  says:  "It  is  evident  that  to  enable  an  article  to 
perform  the  function  of  a  standard  for  deferred  payments,  a  certain 
steadiness  in  value  is  essential."  ("Money,"  p.  36.)  "The  object  of  a 
standard  for  deferred  payments  being1  to  secure  the  payment,  at  the 
maturity  of  obligations,  of  substantially  the  same  purchasing 
power  that  was  in  contemplation  of  the  parties  at  the  formation  of 
the  contract,  it  is  conceivable  that  a  paper  money  might  be  so 
regulated  as  to  preserve  a  more  uniform  value,  from  generation  to 
generation,  than  the  precious  metals  have  maintained  during  any 
considerable  period  of  the  world's  history.  We  have  seen  that 
that  is  the  weak  point  of  the  precious  metals  in  their  use  as 
money."  (Ibid.,  p.  377.) 

"The  production  of  the  precious  metals  is  of  the  most  spasmodic 
character.  At  times,  a  flood  of  gold,  or  of  silver,  or  of  both,  has 
poured  from  newly-opened  mines,  as  after  the  discovery  of  the 
mines  of  Potosi  in  1545,  and  of  the  mines  of  California  almost 
coincidently  with  those  of  Australia,  in  1849-51;  at  times,  on  the 
other  hand,  mining  industry  has  almost  wholly  ceased,  either  from 
the  exhaustion  of  known  deposits,  or  as  the  result  of  war  or 
civil  disturbance.  Such  a  cessation  of  mining  industry  followed 
the  invasion  of  the  Eoman  Empire  by  the  Teutonic  tribes.  The 
series  of  •  revolutions  and  insurrections  in  the  Spanish  States,  be- 
ginning in  1809,  destroyed  the  mining  machinery,  scattered  the 
mining  populations,  and  closed  the  mines  of  regions  which  had  pre- 
viously been  among  the  most  prolific  sources  of  the  world's  supply 
of  metallic  money."  (Pol.  EC.,  p.  141.) 

President  Walker  then  speaks  of  the  comparative  steadiness  of 
agricultural  products,  showing'  that  there  is  much  reason  to  regard 
"Bread-corn  as,  in  truth  what  Francis  Homer  pronounced  it  to 
be,  'the  real  and  paramount  standard  of  all  values.'  "  A  remark 
which  must  be  taken  with  some  qualifications,  but  which  is  very 
forcible  and  covers  an  important  truth.  President  Walker  con- 
tinues: "The  superior  stability  of  value  of  the  cereals,  thru  long 
periods  of  time,  has  led  to  the  suggestion  that,  in  the  case  of  con- 
tracts extending  over  considerable  terms  of  years,  grain  should 
be  adopted  as  the  standard  for  determining  the  obligations  of  the 
debtor,  the  rights  of  the  creditor."  (Pol.  EC.,  p.  142.) 

Locke  favored  this  idea  in  his  paper  on  "The  Value  of  Money," 
and  the  principle  has  been  put  to  practical  use  in  the  corn-rents 
so  long  in  use  in  England,  and  which  have  proved  so  much  more 
stable  in  value  than  money.  "WTe  are  forced  to  admit,"  says  Prof. 
Jevons,  "that  the  statesmen  of  Queen  Elizabeth  were  far-seeing 
when  they  passed  the  act  which  obliged  the  colleges  of  Oxford, 
Cambridge  and  Eton  to  lease  their  lands  for  corn-rents.  The  result 
has  been  to  make  those  colleges  far  richer  than  they  would  other- 
wise have  been,  the  rents  and  endowments  expressed  in  money 
having  sunk  to  a  fraction  of  their  ancient  value."  ("Money,"  p. 
159.) 

After  speaking  of  these  corn-rents,  President  Walker  remarks 
that  a  proposition  has  been  made  by  Jevons  and  others  to  establish 
a  multiple  or  tabular  standard  by  joining  a  great  number  of  arti- 
cles together  so  that  their  individual  value  variations  may  offset 
each  other,  whereby  the  undeserved  losses  resulting  to  debtors  and 
creditors  from  changes  in  the  precious  metals  may  be  avoided. 
("Political  Economy,"  §  191.) 

Discussing  the  proposed  Multiple  Standard,  General  Walker 
affirms  that,  "Certainly,  as  Prof.  Jevons  says,  such  a  standard 
would  add  a  wholly  new  degree  of  stability  to  social  relations,  se- 
curing the  fixed  income  of  individuals  and  public  institutions  from 


150  AUTHORITIES. 

the  depreciation  which  they  have  often  suffered."  ("Money," 
p.  161.) 

"Certainly  the  need  of  such  a  standard  of  deferred  payments  is 
most  imperative  in  the  case  of  those  who  are  not  in  the  way  of 
repairing  any  losses  they  may  suffer  thru  fluctuations  in  the  value 
of  money,  upon  whom  the  full  effects  of  depreciation  fall  directly 
and  remain  without  relief."  (Pol.  EC.,  p.  374.) 

"The  effect  of  the  introduction  of  the  tabular  standard  would 
be  to  decide  how  much  money  at  that  date  constituted  the  equivalent 
in  the  power  to  purchase  the  necessaries,  comforts  and  luxuries  of 
life,  of  the  money  which  would  have  been  paid  had  the  sale  been 
for  cash.  In  short,  it  is  a  means  of  giving  and  taking  credit  with- 
out receiving  an  unearned  advantage  or  suffering  an  undeserved 
injury  thru  fluctuations  in  the  value  of  money."  (Pol.  EC.,  p.  373.) 

President  Walker,  while  thus  pronouncing  in  favor  of  the  Multiple 
Standard  as  a  basis  for  deferred  payments,  does  not.  appear  to 
have  considered  the  question  of  regulating  the  volume  of  money 
so  as  to  keep  the  dollar  in  harmony  with  the  said  standard.  This 
final  element  not  entering  his  thought,  he  was  a  bi-metallist, 
advocating  the  use  of  the  Multiple  Standard  in  deferred  payments. 


PEESIDENT  ANDREWS. 

E.  Benjamin  Andrews,  the  honored  President  of  Brown  Univer- 
sity, is  one  of  the  best  known  economists  on  this  side  of  the  water. 
In  his  Institutes  of  Economics,  section  87,  he  says:  "The  best 
monetary  systems  yet  used  are  very  imperfect,  permitting  the 
most  unhappy  fluctuations  in  the  purchase-power  of  their  units, 
discouraging  enterprise  and  robbing  now  debtors,  now  creditors! 
Bi-metalism  would  relieve,  yet  only  temporarily.  The  time  must 
come  when  Governments  will  be  authorized  (i)  to  watch,  thru 
competent  commissions,  for  each  rise  or  fall  in  the  value  of  money 
(fall  or  rise  of  general  prices),  and  (ii)  to  correct  the  same  by 
expanding  or  contracting  the  circulation." 

In  his  "Honest  Dollar,"  1889,  pp.  8-39,  President  Andrews  says: 
"Money,  besides  furnishing  our  system  of  value-denominations, 
measures  value,  serves  as  a  reservoir  of  value,  and  as  a  standard 
for  deferred  payments.  To  fulfill  ideally  any  one  of  the  last-named 
offices  it  must  preserve  its  general  purchasing  power  unchanged. 
Increase  in  the  value  of  money  robs  debtors.  *  *  *  Decrease  in  the 
value  of  money  robs  creditors.  *  *  *  It  is  very  of  ten  taken  for  grant- 
ed that  the  gold  dollar  must  be  an  honest  dollar,  and  one  may  hear 
this  alleged  in  the  same  breath  with  the  admission  made  by  all, 
that  money  is  good  in  proportion  to  its  stability  of  value.  The 
two  positions  are  of  course  contradictory,  except  upon  the  pre- 
tense, which  no  well-informed  person  will  offer,  that  gold  never 
appreciates  or  depreciates.  *  *  *  Gold  is  produced  under  the  law 
of  diminishing  return,  and  hence  must  in  the  long  future  grow  more 
and  more  scarce,  its  cost  of  production  greater  and  greater,  while 
most  of  the  commodities  trafficked  in  by  means  of  money  are  not 
under  this  law,  are  to  grow  cheaper  and  cheaper  forever,  and 
almost  none  are  so  completely  in  the  clutch  of  the  law  as  gold  is. 

*  *  *  The  fall  of  prices  since  1873  has  been  a  terrible  calamity, 
but  it  has  occurred  in  spite  of  us,  and  here  we  are.  The  evil,  as  a 
whole,  a  general  rise  of  prices  would  not  correct,  but  only  repeat. 
We  have  struck  a  new  base  line  of  prices;  let  us  plant  ourselves 
upon  it,  and  see  to  it  that  we  are  not  forced  to  change  again, 
whether  up  or  down. 

"If  the  rehabilitation  of  silver  as  full  legal  tender  would  fully 
and  finally  keep  change  of  prices  from  recurring,  I  would  advocate 
it  in  spite  of  its  immediate  injustice.  But  it  certainly  would  not. 


AUTHORITIES.  151 

The  relief  would  be  partial  and  temporary.  We  should  never  be 
certain  that  maximum  and  minimum  total  production  of  metal 
would  synchronize  respectively  with  maximum  and  minimum  need, 
while  we  should  be  certain  that  in  the  long*  run  production  must 
fall  behind  need.  *  *  * 

"So  Mr.  Giffen  concedes,  Contemp.  Rev.,  vol.  xlvii,  pp.  800  seq.  Cf. 
Robertson,  Westm.  Rev.,  Oct.  1880.  Cf.  also  Contemp.  Rev.,  vol.  51, 
p.  359,  note.  More  instructive  than  all  these  are  the  critical  views 
of  America's  chief  geologists  and  metallurgists,  set  forth  in  Consu- 
lar Report  No.  87,  December,  1887.  They  nearly  all  agree  with  the 
well-known  conclusions  of  Suess,  in  his  Zukunft  des  Ooldes.  N.  S. 
Shaler  thinks  that  the  output  of  both  gold  and  silver  must  hence- 
forth gradually  decrease,  and  that  'gold  is  more  likely  to  become 
an  article  of  increased  cost  within  the  coming  half  century  than 
any  other  metal,'  tho  we  are  'liable  to  many  sudden  increments  in 
the  production  thereof.'  J.  D.  Hague  is  of  opinion  that  while  gold 
may  slightly  increase  in  yearly  supply,  silver  can  hardly  fail  to 
go  the  other  way.  R.  H.  Richards  concludes  almost  exactly  with 
Shaler.  J.  S.  Newberry  utters,  as  the  result  of  his  long  experience, 
the  conviction  that  our  production  of  both  gold  and  silver  has 
passed  its  maximum,  and  that  in  future  we  cannot  expect  a  yield 
of  more  than  perhaps  one-half  the  greatest  annual  product  of  gold. 
Not  only  America's  but  'the  world's  stock  of  gold  will  gradually 
decline  from  the  diminished  supply,  the  increased  consumption  in 
the  arts,  the  abrasion  of  coin,  etc.'  The  outlook,  he  thinks,  is  much 
the  same  for  silver. 

"R.  H.  Inglis  Palgrave,  in  his  memorandum  printed  as  Appendix 
B.  to  the  final  Report  of  the  (1886)  British  Commission  on  the  De- 
pression of  Trade  and  Industry,  says  that  even  now,  in  spite  of  its 
wide  demonitization,  the  employment  of  silver  for  coinage  purposes 
appears  to  exceed  the  net  production." 

After  discussing  at  length  the  history  of  gold  fluctuations,  Presi- 
dent Andrews  says:  "Is  this  plague  necessary?  Must  it  be  per- 
petual? Is  the  commercial  world,  the  entire  money-using  world, 
to  be  forever  tormented  with  this  accursed  up  and  down  in  the 
purchasing  power  of  money  *  *  *  * 

"Are  we  to  despair  of  stability  in  general  prices?  I  believe  not. 
I  am  impressed  with  the  practicability  of  preserving  prices  per- 
manently at  whatever  level  they  have  at  any  time  assumed,  by 
swelling  or  contracting  the  volume  of  money  in  circulation,  on 
some  such  plan  as  has  been  outlined  by  Professor  Walras,  of  Lau- 
sanne. The  method  would  involve  (1)  the  critical,  official  ascertain- 
ment of  the  course  of  prices;  (2)  the  use  of  some  form  of  subsidiary 
full  legal  tender  money;  and  (3)  the  injection  of  a  portion  of  this 
into  circulation  or  the  withdrawal  of  a  portion  therefrom,  accord- 
ing as  prices  had  fallen  or  risen.  *  *  *  * 

"The  universally  conceded  equity  of  a  composite  value-standard 
would  in  this  way  be  incorporated  in  the  monetary  system  itself, 
and  would  spread  to  all  the  exchange  transactions  of  the  nation. 
The  very  knowledge  of  an  existing  purpose  thus  to  regulate  would 
do  much  to  regulate. 

"Walras's  project  differs  from  this  as  follows:  He  would  work 
a  priori.  He  judges  that  the  volume  of  commerce,  the  volume  of 
money,  and  the  relation  between  the  two  can  all  be  so  closely 
figured  out  and  followed  that  threatened  changes  in  general  prices' 
may  be  forecast  and  prevented.  I  would  be  less  presumptuous,  and 
apply  the  needed  corrective  in  an  a  posteriori  way." 

President  Andrews  advises  the  use  of  call  bonds  as  the  best 
means  of  regulating  the  volume  and  value  of  money.  His  prefer- 
ence would  be,  not  to  discard  the  precious  metals,  but  to  buy  silver 
and  coin  it  and  issue  silver  certificates,  adding  to  or  subtracting 


AUTHORITIES. 

from  their  volume  in  circulation  by  calling  in  or  selling  the  bonds. 
His  reason  for  continuing  the  use  of  metal  as  a  backing  for  the 
currency  is  the  additional  security  thereby  obtained.  But  the 
danger  is,  that  convertibility  into  gold  or  silver  at  fixed  weights 
would  subject  the  currency  to  disturbing  influences  that  would 
make  it  impossible  to  keep  the  dollar  steady,  and  the  silver  backing, 
moreover,  appears  to  be  an  entirely  useless  expense.  (See  Chaps. 
2  and  3.)  President  Andrews  admits  that  if  we  are  to  continue  the 
use  of  gold  and  seek  to  steady  its  value  by  means  of  the  Multiple 
Standard  and  regulation  of  the  money  volume,  an  international 
agreement  would  be  necessary. 


PEOFESSOK    MARSHALL. 

Prof.  Alfred  Marshall,  of  Cambridge  University,  England,  is  the 
leading  English  writer  on  Political  Economy  since  Mill.  In  an 
article  in  the  Contemporary  Review  for  March,  1887,  he  says: 
"The  precious  metals  cannot  afford  a  good  standard  of  value."  He 
then  says  in  substance  that  bi-metallism  would  tend  toward  greater 
steadiness  than  monometallism,  but  would  not  go  very  far,  for  at 
best  it  would  substitute  the  mean  between  two  fluctuating  supplies 
in  place  of  one  fluctuating  supply.  He  believes,  however,  that  bi- 
metallism is  the  next  step  in  the  direction  of  a  steadier  money. 
After  speaking  of  Ricardo's  plan  for  using  a  paper  currency,  based 
not  on  coin,  but  on  stamped  gold  bars  weighing  20  ounces  each,  he 
outlines  a  bi-metallic  scheme  consisting  of  paper  money  redeemable 
in  gold  and  silver,  56y2  grains  of  gold  plus  1130  grains  of  silver 
to  the  pound.  The  holder  of  a  pound  note  could  not  demand  full 
payment  in  gold  nor  full  payment  in  silver,  but  must  take  part  of 
each  in  a  fixed  ratio.  One  of  his  reasons  for  advocating  this  plan, 
Professor  Marshall  says,  is  the  fact  that  "It  is  a  movement  in  the 
direction  in  which  we  want  to  go,  of  a  tabular  standard  for  deferred 
payments." 

In  the  same  article  Professor  Marshall  discusses  the  regulation  of 
the  money  volume  in  order  to  keep  the  dollar  in  harmony  with  the 
"unit"  value  of  a  multiple  standard.  He  does  not  appear  to  think 
that  the  time  has  come  for  a  practical  realization  of  such  regula- 
tion, but  his  remarks  are  important  and  suggestive,  especially 
when  viewed  in  the  light  of  the  words  above  quoted  from  him.  lie 
says: 

"Mr.  Walras  has  proposed  to  steady  the  value  of  gold  by  issuing 
or  withdrawing  token  silver  coins  according  as  gold  rose  or  fell 
in  value.  His  scheme  is  able  and  ingenious.  But  as  he  admits,  it 
would,  like  any  other  scheme  for  regulating  the  value  of  gold  and 
silver,  require  an  international  agreement.  And  I  do  not  see  how 
this  could  be  managed,  because,  to  say  nothing  of  minor  difficulties, 
there  cannot  be  a  common  unit  of  purchasing  power  for  all  coun- 
tries. Every  plan  for  regulating  the  supply  of  the  currency,  so 
that  its  value  shall  be  constant,  must,  I  think,  be  national  and  not 
international. 

"I  will  indicate  briefly  two  such  plans,  tho  I  do  not  advocate 
either  of  them.  On  the  first  plan  the  currency  would  be  incon- 
vertible. An  automatic  Government  Department  would  buy  consols 
•for  currency  whenever  £  1  was  worth  more  than  a  unit,  and 
would  sell  consols  for  currency  whenever  it  was  worth  less.  Those 
who  had  to  pay  balances  to  foreign  countries  would  buy  gold  or 
silver  in  the  open  market;  they  would  be  certain  of  getting  in 
exchange  for  this  money  gold  and  silver  that  had  a  fixed  pur- 
chasing power  in  England.  The  researches  of  Mr.  Palgrave  and  Dr. 
Soetbeer  show  that  a  unit  of  fixed  purchasing  power  in  England 
would  give  a  more  nearly  uniform  purchasing  power  in  any  other 


AUTHORITIES. 


153 


civilized  country  than  would  an  ounce  of  gold  or  an  ounce  of 
silver.  On  the  whole,  this  currency  would,  I  believe,  give  more 
stability  to  our  foreign  trade  than  our  present  one. 

"The  other  plan  is,  that  of  a  convertible  currency,  each  one 
pound  note  giving  the  right  to  demand  at  a  Government  office  as 
much  gold  as  at  that  time  had  the  value  of  half  a  unit,  together 
with  as  much  silver  as  had  the  value  of  half  a  unit.  The  necessary 
provisions  for  keeping  a  proper  reserve  of  gold  and  silver  would  be 
a  little  intricate,  but  would  involve  no  great  practical  difficulty. 
Under  either  of  these  plans,  contracts  for  deferred  payments  might 
be  made  fairly  well  in  terms  of  the  currency." 


PROFESSOR  JEVONS. 

W.  Stanley  Jevons,  Professor  of  Political  Economy  in  Owen's 
College,  Manchester,  Eng.,  has  a  worldwide  reputation  as  one  of  the 
foremost  writers  on  monetary  science.  His  writings  are  used  as 
text-books  in  universities  and  colleges  all  over  the  English-speaking 
world. 

In  his  "Money  and  the  Mechanism  of  Exchange,"  written  in 
1874-5,  he  says: 

"It  is  evidently  desirable  that  the  currency  should  not  be  subject 
to  fluctuations  of  value.  The  ratios  in  which  money  exchanges 
for  other  commodities  should  be  maintained  as  nearly  as  possible 
invariable  on  the  average."  (P.  38.) 

Speaking  of  the  plans  of  Lowe,  Scrope,  and  others,  for  a  tab- 
ular or  multiple  standard  of  value  to  be  used  as  the  basis  of  settle- 
ment in  long  contracts,  Jevons  says: 

"Such  schemes  for  a  tabular  or  average  standard  of  value  appear 
to  be  perfectly  sound  and  highly  valuable  in  a  theoretical  point 
of  view,  and  the  practical  difficulties  are  not  of  a  serious  character. 
To  carry  Lowe's  and  Scrope's  plans  into  effect,  a  permanent  Gov- 
ernment commission  would  have  to  be  created,  and  endowed  with 
a  kind  of  judicial  power.  The  officers  of  the  department  would 
collect  the  current  prices  of  commodities  in  all  the  principal  mar- 
kets of  the  kingdom,  and,  by  a  well-defined  system  of  calculations, 
would  compute  from  these  data  the  average  variations  in  the  pur- 
chasing power  of  gold.  The  decisions  of  this  commission  would 
be  published  monthly,  and  payments  would  be  adjusted  in  accord- 
ance with  them.  Thus,  suppose  that  a  debt  of  one  hundred  pounds 
was  incurred  upon  the  1st  of  July,  1875,  and  was  to  be  paid  back 
on  1st  of  July,  1878;  if  the  commission  had  decided  in  June,  1878, 
that  the  value  of  gold  had  fallen  in  the  ratio  of  106  to  100  in  the 
intervening  years,  then  the  creditor  would  claim  an  increase  of  6 
per  cent,  in  the  nominal  amount  of  the  debt. 

"At  first  the  use  of  this  National  tabular  standard  might  be  per- 
missive so  that  it  could  be  enforced  only  where  the  parties  to  tne 
contract  had  inserted  a  clause  to  that  effect  in  their  contract. 
After  the  practicability  and  utility  of  the  plan  had  become  suffi- 
ciently demonstrated,  it  might  be  made  compulsory,  in  the  sense 
that  every  money  debt  of,  say  more  than  three  months'  standing, 
would  be  varied  according  to  the  tabular  standard,  in  the  absence 
of  an  express  provision  to  the  contrary.  (Pp.  330-1.) 

"The  space  at  my  disposal  will  not  allow  me  to  describe  ade- 
quately the  advantages  which  would  arise  from  the  establishment 
of  a  National  tabular  standard  of  value.  Such  a  standard  would  add 
a  wholly  new  degree  of  stability  to  social  relations,  securing  the 
fixed  incomes  of  individuals  and  public  instiutions  from  the  depre- 
ciation which  they  have  so  often  suffered.  Speculation,  too,  based 
upon  the  frequent  oscillations  of  prices,  which  take  place  in  the 
present  state  of  commerce,  would  be  to  a  certain  extent  discour- 


154  AUTHORITIES. 

aged.  The  calculations  of  merchants  would  be  less  frequently 
frustrated  by  causes  beyond  their  own  control,  and  many  bank- 
ruptcies would  be  prevented.  Periodical  collapses  of  credit  would 
no  doubt  recur  from  time  to  time,  but  the  intensity  of  the  crises 
would  be  mitigated,  because  as  prices  fell  the  liabilities  of  debtors 
would  decrease  approximately  in  the  same  ratio."  (Pp.  332-3.) 

PROFESSOR   SIMON   NEWCOMB. 

The  writings  of  this  distinguished  educator  having  received  no 
attention  in  previous  chapters  beyond  a  bare  mention,  we  may 
briefly  summarize  here  his  valuable  article  in  the  North  American 
Review  for  September,  1879.  The  Professor  says  that  notwithstand- 
ing the  wonderful  progress  of  civilization,  we  have  not  improved 
on  the  money  of  Abraham.  This  is  partly  because  the  fluctuations 
of  money  escape  our  notice.  Our  whole  education  leads  us  to  look 
on  the  dollar  as  absolutely  invariable.  It  is  like  the  earth.  We 
do  not  see  it  move.  The  sun  and  stars  appear  to  move  round  the 
world,  and  commodities  appear  to  move  while  gold  stands  still, 
whereas  in  both  cases  the  actual  fact  is  the  reverse  of  appear- 
ances. "The  dollar  of  to-day  is  worth  twice  as  much  as  was  that 
of  15  years  ago."  And  we  have  every  reason  to  anticipate  the 
slow  advance  of  a  gold  famine.  If  new  sources  of  supply  are  dis- 
covered, it  will  only  delay  a  little  the  inevitable  famine  (unless 
the  chemists  learn  to  make  gold  and  then  the  standard  will  become 
worthless  for  the  opposite  reason.)  The  Professor  says  that  the 
Multiple  Standard  has  not  received  the  attention  it  deserves  and 
continues  thus:  (Pp.  231-5.) 

"An  invariable  standard  is  better  than  either  a  depreciating  or 
an  appreciating  one.  *  *  *  That  a  standard  of  value  with  the 
use  of  which  no  such  thing  as  general  fluctuations  in  price  should 
be  possible,  is  one  of  the  greatest  social  desiderata  of  our  day,  no 
one  will  deny. 

"What  we  want  is  a  dollar  of  uniform  value,  as  measured  by  the 
average  of  commodities." 

"The  legal-tender  doljar  shall  be  defined  as  a  quantity  of  some- 
thing, no  matter  what,  sufficient  to  purchase  in  the  public  markets, 
at  average  wholesale  prices,  a  definite  collection  of  commodities." 

"The  first  and  most  obvious  method  of  attaining  the  object  is 
to  issue  a  paper  currency  which  shall  be  redeemable,  not  in  gold 
dollars  of  fixed  weight,  but  in  such  quantities  of  gold  and  silver 
bullion  as  shall  suffice  to  make  the  required  purchases." 

RICARDO. 

President  Walker,  and  other  great  economists,  regard  Eicardo 
as  the  most  illustrious  of  all  writers  upon  finance.  In  his  "Pro- 
posals for  an  Economic  and  Secure  Currency,"  1816,  Ricardo  says, 
Sees.  1  and  2: 

"All  writers  on  the  subject  of  money  have  agreed  that  uniformity 
in  the  value  of  the  circulating  medium  is  an  object  greatly  to  be 
desired.  Every  improvement,  therefore,  which  can  promote  an 
approximation  to  that  object,  by  diminishing  the  causes  of  varia- 
tion, should  be  adopted.  *  *  *  A  currency  may  be  considered 
as  perfect,  of  which  the  standard  is  invariable,  which  always  con- 
forms to  that  standard,  and  in  the  use  of  which  the  utmost 
economy  is  practiced.  *  *  *  During  the  late  discussions  on 
the  bullion  question  it  was  most  justly  contended  that  a  currency 
to  be  perfect,  should  be  absolutely  invariable  in  value. 

"No  plan  can  possibly  be  devised  which  will  maintain  money 
at  an  absolutely  uniform  value,  because  it  will  always  be  subject 


AUTHORITIES. 


155 


DO  those  variations  to  which  the  commodity  itself  is  subject,  which 
has  been  fixed  upon  as  a  standard.  While  the  precious  metals  con- 
tinue to  be  the  standard  of  our  currency,  money  must  necesssarily 
undergo  the  same  variations  in  value  as  those  metals." 

Ricardo  did  not  deem  it  impossible  to  attain  a  steady  money 
because  of  any  failure  to  recognize  the  principles  on  which  the 
value  of  paper  money  depend.  In  his  Political  Economy,  §125,  he 
says: 

"It  is  on  this  principle  that  paper  money  circulates:  the  whole 
charge  for  paper  money  may  be  considered  as  seigniorage.  Tho 
it  has  no  intrinsic  value,  yet,  by  limiting  its  quantity,  its  value  in 
exchange  is  as  great  as  an  equal  denomination  of  coin,  or  of 
bullion  in  that  coin." 

Ricardo  further  says:  "A  regulated  paper  currency  is  so  great 
an  improvement  in  commerce  that  I  should  greatly  regret  if  preju- 
dice should  induce  us  to  return  to  a  system  of  less  utility.  The 
introduction  of  the  precious  metals  for  the  purposes  of  money 
may  with  truth  be  considered  as  one  of  the  most  important  steps 
towards  the  improvement  of  commerce  and  the  arts  of  civilized 
life.  But  it  is  no  less  true  that,  with  the  advancement  of  knowl- 
edge and  finance,  we  discover  that  it  would  be  another  improve- 
ment to  banish  them  again  from  the  employment  to  which,  during 
the  less  enlightened  period,  they  had  been  so  advantageously  ap- 
plied." ("Works"  by  McCulloch,  p.  404.) 

Again  he  says:  "It  is  not  necessary  that  paper  money  should  be 
payable  in  specie  to  secure  its  value;  but  only  that  its  quantity 
should  be  regulated  according  to  the  value  of  the  metal  which  is 
declared  to  be  the  standard."  (Ricardo's  "Plan  for  the  Extinction 
of  Bank  Notes.") 

Tho  fully  recognizing  the  imperfections  of  the  precious  metals, 
Ricardo  proposed  to  use  gold  as  the  standard  of  value  for  want 
of  a  better.  The  use  of  a  composite  commodity  standard  did  not 
occur  to  him.  If  he  had  thought  of  that,  his  principles  would  in- 
evitably have  led  him  to  a  system  substantially  like  the  one  pro- 
posed in  this  book,  for  that  standard  supplies  the  one  additional 
element  he  said  was  necessary  to  make  a  perfect  money. 

PETER  COOPER. 

This  great  New  York  financier  believed  in  honest  money  and 
urged  his  countrymen,  after  the  war,  not  to  abandon  the  paper 
basis,  but  to  use  an  independent  National  currency  and  regulate  its 
volume.  Peter  Cooper,  Horace  Greely  and  Henry  Carey  Baird  ad- 
vocated a  paper  money  issued  by  the  Government  and  convertible 
into  United  States  bonds  bearing  low  interest.  The  mutual  con- 
vertibility would  prevent  any  great  excess  or  dearth  of  money. 

Cooper  said  in  substance  (Letter  on  the  Currency,  N.  Y.,  Phila. 
Library,  20527,  O.  11,  Pamphlet):  "Experience  has  shown  that 
individuals  or  corporations  cannot  be  trusted  with  the  power  of 
issuing  money.  Governments  are  the  safest  depositories  of  the 
power.  Value  has  hitherto  been  measured  by  its  exchangeableness 
with  gold,  but  this  is  subjecting  paper  to  the  laws  of  barter.  It 
presumes  that  Governments  can  control  what  is  uncontrollable, 
namely,  the  amount  of  gold  that  may,  at  any  time,  be  in  a  coun- 
try. 

"To  fix  upon  an  arbitrary  and  fluctuating  standard,  such  as  the 
worth  or  exchangeable  value  of  a  gold  dollar,  is  as  uncertain  as 
to  take  any  other  permanent  product  of  human  labor,  such  as  a 
bushel  of  wheat  or  a  pound  of  cotton.  But  how  shall  Government 
give  an  exchangeable  value  to  a  paper  currency?  Can  it  do  so  by 
a  standard  which  is  beyond  its  control,  and  which  naturally  fluc- 
tuates ? 


156  AUTHORITIES. 

"This  is  the  unsound  state  which  possesses  the  minds  of  our 
people  and  of  our  politicians. 

"We  must  come  out  of  this  unreasonable  condition,  or  we  shall 
be  subject,  for  all  time,  to  these  periodic  disturbances  of  our  money 
and  currency  which  bring  such  widespread  ruin  and  distress  on 
our  commercial  industries,  and  work,  on  the  part  of  the  Govern- 
ment, positive  and  cruel  injustice.  The  remedy  seems  to  me  to 
be  very  plain.  First.  We  must  put  this  whole  power  of  coining- 
money  or  issuing  currency,  as  Thomas  Jefferson  says,  where,  by 
the  Constitution,  it  properly  belongs', — entirely  in  the  hands  of  our 
Government.  We  must  trust  our  Government  with  this  whole 
function  of  providing  the  standards  and  measures  of  exchange  as 
we  trust  it  with  the  weights  and  measures  of  all  trade.  The  more 
stake  the  people  have  in  the  wisdom  and  honesty  of  the  administra- 
tion of  the  Government,  the  more  watchful  and  firm  they  will  be 
in  its  control." 

"Secondly.  We  must  require  the  Government  to  make  this  cur- 
rency at  all  times,  and  at  the  option  of  the  individual,  convertible. 
Butthe  currency  must  be  convertible  into  something  over  which  the 
Government  has  entire  control,  and  to  which  it  can  give  a  definite 
as  well  as  a  permanent  value.  This  is  its  own  interest-bearing 
bonds." 

If  money  were  scarce,  interest  would  rise  and  bonds  would  come 
in  for  translation  into  currency.  If  money  were  plenty,  interest 
would  fall  and  it  would  be  profitable  to  invest  in  bonds  again,  thus 
diminishing  the  volume  of  the  currency.  If  the  Government  may 
"call"  the  bonds  in,  they  become  a  still  more  plastic  means  of  regu- 
ation.  (See  Chap.  III.) 


THE   UNITED   STATES   SUPREME   COUET. 

In  the  Legal  Tender  Cases,  the  United  States  Supreme  Court 
made  some  very  significant  remarks  concerning  intrinsic  value, 
monetary  standards,  the  advantages  of  paper  money,  the  necessity 
of  sustaining  the  debtor  interest  and  not  allowing  it  to  be  crushed 
under  the  weight  of  appreciating  money,  etc.  The  Court  said: 
"Whatever  power  there  is  over  the  curency  is  vested  in  Congress. 
If  the  power  to  declare  what  is  money  is  not  in  Congress,  it  is 
annihilated.  (12  Wallace,  545). 

"No  one  ever  doubted  that  a  debt  of  one  thousand  dollars,  con- 
tracted before  1834,  could  be  paid  by  one  hundred  eagles  coined 
after  that  year,  tho  they  contained  no  more  gold  than  ninety- 
four  eagles  such  as  were  coined  when  the  contract  was  made,  and 
this,  not  because  of  the  intrinsic  value  of  the  coin,  but  because  of  its 
LEGAL  VALUE.  The  eagles  coined  after  1834  wrere  not  money  until 
they  were  authorized  by  law,  and  had  they  been  coined  before, 
without  a  law  fixing  their  legal  value,  they  could  have  no  more 
paid  a  debt  than  uncoined  bullion,  or  cotton,  or  wheat.  (12  Wal- 
lace, 548-9). 

"The  coinage  acts  fix  its  unit  as  a  dollar;  but  the  gold  or  silver 
thing  we  call  a  dollar  is,  in  no  sense,  a  standard  of  a  dollar.  It 
is  a  representative  of  it.  (12  Wallace,  553). 

"The  debtor  interest  of  the  country  represents  its  bone  and 
sinew  and  must  be  encouraged  to  pursue  its  avocations."  (12  Wal- 
lace, 564). 

The  opinion  of  the  Court  in  respect  to  the  advantages  of  paper 
money,  has  been  quoted  in  the  first  chapter  and  need  not  be  here 
repeated. 

In  the  same  cases  (12  Wallace,  557,  568),  the  Court  used  the  fol- 
lowing language  in  respect  to  the  value  of  paper  money: 

"Dr.  Franklin,  in  a  letter  to  a  friend,  dated  from  Paris,  in  April, 


AUTHORITIES. 

1779,  after  deploring-  the  depreciation  which  the  Continental  cur- 
rency had  undergone,  said:  'The  only  consolation  under  this  evil 
is,  that  the  public  debt  is  proportionately  diminished  by  the  de- 
preciation; and  this,  by  a  kind  of  imperceptible  tax,  every  one  hav- 
ing- paid  a  part  of  it  in  the  fall  of  value  that  took  place  between 
the  receiving  and  paying  such  sums  as  passed  thru  his  hands.'  He 
adds:  'This  effect  of  paper  currency  is  not  understood  this  side 
of  the  water.  Arid  indeed  the  whole  is  a  mystery  even  to  the  poli- 
ticians, and  how  we  have  been  able  to  continue  a  war  for  four 
years  without  money,  and  how  we  could  pay  with  paper  that  had 
no  previously  fixed  fund  appropriated  specially  to  redeem  it.  This 
currency,  as  we  manage  it,  is  a  wonderful  machine.  It  performs 
its  office  when  we  issue  it;  it  pays  and  clothes  troops,  and  provides 
victuals  and  ammunition.'  (Franklin's  Works,  Vol.  8,  p.  329).  In 
a  subsequent  letter  of  9th  October,  1780,  he  says:  'They  (the  Con- 
gress) issued  an  immense  quantity  of  paper  bills,  to  pay,  clothe, 
arm  and  feed  their  troops  and  fit  out  ships;  and  with  this  paper, 
without  taxes  for  the  first  three  years,  they  fought  and  battled 
one  of  the  most  powerful  nations  of  Europe.'  (Franklin's  Works, 
Vol  8,  p.  507). 

"It  is  well  known  that  for  over  twenty  years,  from  1797  to  1820, 
the  most  stringent  paper  money  system  that  ever  existed  prevailed 
in  England,  and  lay  at  the  foundation  of  all  her  elasticity  and 
endurance. 

"It  is  unnecessary  to  refer  to  other  examples.  France  is  a  not- 
able one.  Her  assignats  issued  at  the  commencement  and  during  the 
Revolution,  performed  the  same  office  as  our  Continental  bills;  and 
enabled  the  nation  to  gather  up  its  latent  strength  and  call  out 
its  energies.  Almost  every  nation  of  Europe,  at  one  time  or  an- 
other, has  found  it  necessary  or  expedient  to  resort  to  the  same 
method  of  carrying  on  its  operations  or  defending  itself  against 
aggression." 

WILLIAM    JENNINGS    BRYAN. 

In  his  California  speeches,  as  reported  in  the  Denver  "New  Road," 
of  July,  1897,  Mr.  Bryan  admitted  that  neither  gold  nor  silver  rep- 
resents an  honest  dollar.  "An  honest  dollar,"  said  he,  "is  a  dol- 
lar that  will  always  buy  the  same  amount  of  products;  and  if 
such  a  dollar  could  be  constructed,  a  man  would  not  be  called  upon 
in  ten  years  to  pay  back  a  debt  in  dollars  worth  four  times  the 
dollar  he  borrowed;  neither  would  he  be  enabled  to  pay  off  a  debt 
with  dollars  four  times  as  cheap  as  the  dollar  he  borrowed."  The 
report  continues:  "Mr.  Bryan  advocates  a  paper  dollar  based  upon 
ten  leading  products  of  the  nation,  and  when  he  does  so  he  recom- 
mends the  most  scientific  money  the  world  ever  saw.  Given  a 
dollar  based  upon  oats,  corn,  wheat,  rye,  petroleum,  pork,  cotton, 
sugar,  tobacco  and  coal,  the  value  of  which  would  be  controlled  by 
the  average  of  these  commodities,  would  give  us  'an  honest  dol- 
lar.' " 

WENDELL    PHILLIPS. 

The  great  anti-slavery  orator,  one  of  the  greatest  orators  and 
one  of  the  truest  friends  of  the  people  that  has  ever  lived,  regarded 
the  emancipation  of  the  country  from  the  despotism  of  an  unjust 
(Minvnrv  as  tlie  vital  issue  after  slavery  was  abolished.  In  1878,  he 
said:  '("Who  shall  Rule  Us,  Money  or  the  People,"  by  Wendell 
Phillips.  Boston,  1878.  Rand,  Avery  &  Co.)  "I  shall  vote  for  Gen- 
eral Butler  because  he  represents  the  determination  of  the  people 
to  take  the  currency  out  of  the  control  of  money-kings.  *  *  * 
When  slavery  was  abolished — when  it  was  settled  that  the  capitalist 


158  AUTHORITIES. 

should  no  longer  own  the  laborer — all  labor,  black  and  white. 
North  and  South,  was  lifted  to  the  level  of  wages.  Of  course  every 
wage-laborer  desired  a  fair  division  of  the  joint  product  of  labor 
and  capita).  Horace  Mann  said  (substantially):  'Yankee  ingenuity 
has  increased  production  tenfold,  but  we  have  made  hardly  one 
step  forward  toward  a  fair  division  of  that  product.' 

"In  our  effort  to  secure  a  fairer  division,  we  soon  saw  that  the 
dollar  in  which  labor  was  paid  was  one  of  the  most  important,  if 
not  the  most  important,  element  in  the  solution  of  this  problem. 
In  other  words,  we  saw  it  was  currency  which,  rightly  arranged, 
opened  a  nation's  well-springs,  found  work  for  willing  hands,  and 
filled  them  with  a  great  return,  while  honest  capital,  daily  larger 
and  more  secure,  ministered  to  a  glad  prosperity;  or  it  was  cur- 
rency, wickedly  and  selfishly  juggled,  that  made  merchants  bank- 
rupt, and  starved  labor  into  discontent  and  slavery,  while  capital 
added  house  to  house,  and  field  to  field,  and  gathered  into  its 
miserly  hands  all  the  wealth  left  in  a  ruined  land. 

"The  first  question,  therefore,  in  an  industrial  nation,  is,  where 
ought  the  control  of  the  currency  to  rest?  In  whose  hands  can 
this  almost  omnipotent  power  be  trusted?  Every  writer  on  poli- 
tical economy,  from  Aristotle  to  Adam  Smith,  from  Ricardo  to 
Calhoun,  allows  that  a  change  in  the  currency  alters  the  price  of 
every  ounce  and  yard  of  merchandise  and  every  foot  of  land.  Whom 
can  we  trust  with  this  despotism? 

"At  present  the  banks  and  the  money-kings  wield  this  power. 
They  own  the  yardstick,  and  can  make  it  shorter  or  longer  as 
they  please,  and  when  they  will.  They  own  the  pound-weight  and 
can  make  it  heavier  or  lighter  as  they  choose. 

"This  explains  the  riddle,  so  mysterious  to  common  men,  why 
those  who  trade  in  money  always  grow  rich,  even  while  those  who 
trade  in  other  things  go  into  bankruptcy. 

"This  is  the  issue  of  to-day.     Who  shall  make  the  yardstick? 

"Mr.  Schurz,  my  friend  Mr.  Elaine,  Mr.  Secretary  Sherman,  fancy 
we  are  discussing  what  the  money  shall  be  made  of;  whether  paper 
or  metal.  Not  yet,  gentlemen.  The  question  is  not  what  the 
money  shall  be  made  of:  the  question  to-day  is,  Who  shall  make 
the  Money;  Banks,  or  the  Government?  Money-Kings  or  the  people? 
As  Ewing  said,  last  August,  'The  practical  money  question  in  the 
United  States  is  not  whether  the  currency  shall  be  coin  or  paper, 
but  who  shall  issue  the  paper  money,  and  how  shall  its  volume  be 
determined?'  By  and  by,  after  we  have  settled  this  first  point,  we 
will  discuss  that  second  one.  To-day  we  are  fighting  to  secure 
what  Jefferson,  in  1813,  advised  that  'the  circulation  be  restored 
to  the  nation  to  whom  it  belongs.' 

"This  is  the  reason  why  the  banks  and  money-kings  hate  this 
movement  so  bitterly,  and  pour  out  their  money  like  water  to  kill 
it.  They  feel  and  know  it  is  a  hand-to-hand  fight  between  them- 
selves and  the  people — one  of  the  last  battles  between  aristocrocy 
and  democracy.  The  most  cunning  weapon  they  use  is  that  of 
confusing  the  question,  in  order  to  hide  the  real  issue,  which  is 
simply:  Shall  the  Nation  make  its  own  currency,  or  put  itself  under 
the  guardianship  of  capital — sheep  in  the  keeping  of  wolves?" 

In  another  address  (Wendell  Phillips  on  the  Currency,  a  pamph- 
let in  the  Boston  Public  Library),  Phillips  said:  "England  and 
France — the  two  nations  to  which  gold  naturally  and  almost,  in- 
evitably runs,  since  they  are  credit  States — have  been  obliged 
to  resort  to  paper  currency  upon  every  emergency.  The  specie 
bank  of  England,  since  she  was  remodeled  in  1844,  has  thrice  been 
obliged  to  beg  the  Government  to  save  her  from  suspension.  If 
England,  the  richest  nation  in  the  world,  the  reservoir  and  refuge 
of  coin,  cannot  without  subterfuge,  support  one  specie  paying 
bank  in  London,  the  world's  business  centre,  how  can  we  expect 


AUTHORITIES.  159 

to  hoard  gold  enough  to  form  a  real  basis  for  two  thousand  banks 
scattered  over  the  continent? 

"Gold  is  no  trustworthy  standard  of  value.  During  the  rebellion 
gold — measured  by  the  prices  of  twenty  of  our  great  staples — 
varied  more  than  any  of  them  did,  except  cotton,  the  cause  of  the 
war. 

"Now  while  gold  has  thus  varied  during  the  last  ninety  years, 
there  is  in  England  one  commodity  which  never  changes:  that  is 
consols  and  shares  in  the  Bank  of  England;  which  practically  are 
public  funds,  since  they  are  in  effect  guaranteed  by  the  nation. 
From  1789  to  1875,  both  inclusive,  the  average  price  of  a  consol  was 
£81.  If,  as  Jevons  says,  from  1809  to  1849  gold  more  than  doubled 
in  value,  the  consol  never  changed;  its  average  price  those  forty-one 
years  was  just  what  it  was  before  and  after,  that  is,  £81.  If,  as 
Jevons  and  Fawcett  say,  since  1809,  gold  has  fallen  one-quarter, 
consols  have  not  fallen.  So  of  the  bank  shares;  the  interest  on 
their  selling  price  from  1789  to  1872  was  the  slightest  trifle  above 
four  per  cent.  During  the  forty-one  years  (1809-1849)  that  Jevons 
says  gold  rose  to  double,  the  interest  was  just  the  slightest  trifle 
below  four  per  cent  (4.04  in  one  case,  3.94  in  the  other.)  During 
these  last  twenty-five  years,  when  gold  has  fallen  one-quarter,  the 
interest  on  a  bank  share  is  3.67  per  cent. 

"Now,  let  men  explain  the  unchanging  values  of  these  stocks  as 
they  please,  their  unchanging  value  remains  a  fact.  Eemember 
what  these  last  84  years  have  done  and  seen — the  French  Revolu- 
tion and  Napoleon  Wars,  Waterloo,  paper  money,  riots,  famines, 
California,  the  Crimean  War,  the  Franco-Prussian  War,  steam,  the 
use  of  cotton,  extension  of  the  ballot,  the  telegraph,  and  our  re- 
bellion. Still,  thru  all,  the  ebb  tide  and  the  flood,  the  sunshine 
and  the  tempest,  the  funds  of  England  have  steadied  with  un- 
changing keel.  What  explains  it?  Their  basis  is  a  government 
bond,  at  a  low  rate  of  interest,  but  sure  as  'death  and  taxes.' 

"Taking  note  of  this,  we  propose  to  found  our  National  currency 
on  a  Government  bond,  bearing  a  low  rate  of  interest.  Why  should 
not  our  bond  be  as  unvarying  as  that  of  England?  She  is  encom- 
passed by  troubles  and  dangers,  half  a  dozen  warlike  rivals,  and 
constant  risk  of  international  complications.  We  have  a  clear 
sky,  and  the  ocean  for  a  wall  of  defence.  Why  should  not  our 
bond  be  better  than  hers?  *  *  * 

"The  moment  you  leave  a  simple  barter,  that  moment  the  power 
to  inflate  begins.  This  power  must  always  reside  in  civilized 
States  which  have  ceased  to  use  barter.  The  only  real  question  is, 
where  shall  it  be  trusted?  Under  our  present  system  it  rests  in 
the  hands  of  the  bank  directors.  Ricardo  and  all  other  writers 
allow  that  those  who  increase  and  diminish,  at  their  pleasure,  the 
currency  (not  note  currency  merely,  but  discounts,  checks,  credits, 
notes  and  coin)  have  the  power  to  change  prices  at  their  will.  To- 
day, our  bank  directors  have  this  power.  The  New  York  City 
banks  increased  this  currency  $2,957,200  in  one  month,  September, 
1874,  and  decreased  it  $5,000,000  in  one  week  of  March,  1875.  They 
thus  changed  the  value  of  every  commodity  in  that  city.  '10  in- 
flate in  the  same  proportion,  Congress  must  pour  out  and  Keep*  out 
$50,000,000  a  week.  *  *  * 

"They  (the  people)  will  keep  it  in  the  form  of  bonds,  or  draw 
it  forth  in  greenbacks,  as  the  hour  dictates.  They  will  decide, 
under  this  elastic  system,  how  much  currency  is  needed  by  a  na- 
tion, not  rich,  but  widely  scattered  and  marvellously  busy;  one 
whose  harvests  can  feed  the  world,  and  her  mines  supply  it  with 
metal  and  coal;  while  rivers  and  mountains  and  thousands  of 
miles  divide  prairie  and  seaport,  plantation  and  spindle,  mine  and 
forge.  Indeed,  this  movement  is  a  revolt  against  a  system  of 
finance  which  rests  the  power  of  inflation  in  the  hands  of  a  few 


160  AUTHORITIES. 

hundred  bank  directors,  and  lets  them  play  with  values  at  their 
pleasure.  This  movement  is  in  its  essence  the  assertion  that  when 
our  fathers  settled  it  that  the  people  were  competent  to  govern 
themselves,  they  meant  to  include  among  the  points  as  to  which 
they  were  competent,  the  question  of  finance,  as  well  as  marriage, 
crimes,  real  estate,  wills,  and  other  matters  of  government.  This 
movement  is  a  revolt  against  the  notion  that  in  ordinary  matters 
the  people  can  govern  themselves,  but  on  questions  of  finance  they 
must  be  kept  under  perpetual  guardianship,  and  be  the  wards  of 
rich  men." 

BENJAMIN   FRANKLIN. 

In  Chapter  I.,  we  have  already  seen  that  the  great  philosopher 
and  patriot  of  Revolutionary  days  was  a  strong  believer  in  paper 
money  of  limited  volume.  We  will  not  requote,  but  merely  add 
one  further  brief  citation. 

"Paper  money,"  says  Franklin,  "well  founded,  has  great  advan- 
tages over  gold  and  silver,  being  more  lig'ht  and  convenient  for 
handling  large  sums,  and  not  likely  to  have  its  volume  reduced 
by  demands  for  exportation.  No  method  has  hitherto  been  formed 
to  establish  a  medium  of  trade  equal  in  all  its  advantages  to  bills 
of  credit  made  a  general  legal  tender."  ("Works,"  Vol.  IV.,  p.  2. 
The  passage  is  frequently  quoted.  Wendell  Phillips,  Peter  Cooper, 
the  United  States  Supreme  Court  and  many  other  authorities  cite 
Franklin's  views  on  the  money  question  with  hearty  approval.) 

THOMAS   JEFFERSON. 

The  father  of  Democracy  clearly  saw  that  the  money  system  of 
the  country  should  belong  to  the  sovereign  people  and  not  to  the 
sovereign  banks. 

"Bank  paper  must  be  suppressed,  and  the  circulating  medium 
must  be  restored  to  the  nation  to  whom  it  belongs.  It  is  the  only 
fund  on  which  they  can  rely  for  loans;  it  is  the  only  resource 
which  can  never  fail  them,  and  it  is  an  abundant  one  for  every 
necessary  purpose.  Treasury  bills,  bottomed  on  taxes,  bearing  or 
not  bearing  interest,  as  may  be  found  necessary,  thrown  into  cir- 
culation will  take  the  place  of  so  much  g-old  or  silver,  which  last, 
when  crowded,  will  find  an  efflux  into  other  countries,  and  thus 
keep  the  quantum  of  medium  at  its  salutary  level. 

"No  method  has  hitherto  been  formed  to  establish  a  medium  of 
trade  equal  in  all  its  advantages  to  bills  of  credit  made  a  general 
legal  tender."  (Jefferson's  Works,  Vol.  VI.,  p.  199). 

Jefferson  saw  that  money  should  be  public,  independent,  regu- 
lated. In  1776  he  wrote  the  Declaration  of  Independence  for 
American  manhood,  proclaiming  the  truth  that  American  citizens 
ought  to  be  free  from  the  rule  of  European  monarchs.  And  if  he 
were  living  to-day,  he  would  write  a  Declaration  of  Independence 
for  the  American  dollar,  proclaiming  the  truth  that  American 
money  should  be  freed  from  the  despotic  rule  of  the  square  mile 
of  Xondon,  which  controls  the  financial  policy  of  the  world.  Indeed, 
the  new  Declaration  is  necessary  for  the  fulfillment  of  the  first, 
for  American  citizens  cannot  be  free  from  European  rule  so  long 
as  American  dollars  are  subject  to  foreign  control. 

ABRAHAM    LINCOLN. 

In  a  letter  to  Col.  Edmund  Taylor,  December,  1864,  President 
Lincoln  said:  "Chase  thought  it  a  hazardous  thing,  but  we  finally 
accomplished  it,  and  gave  to  the  people  of  this  Republic  the  greatest 
blessing  they  ever  had — their  own  paper  to  pay  their  own  debts." 


APPENDIX  A. 

PENNSYLVANIA  CURRENCY. 

(See  reference,  page  14.) 

In  1697  silver  was  plentiful  in  Pennsylvania,  but  by  1719  pay- 
ments for  imports  and  payments  to  the  foreign  proprietors  had 
stripped  the  colony  of  its  coin,1  and  the  people  had  to  carry  on 
the  principal  part  of  their  commerce  by  barter.  In  1723  the  As- 
sembly ordered  the  issue  of  £15,000  in  paper  money,  £11,000  to 
be  loaned  to  the  people  on  real  estate  security,  the  balance  to  be 
issued  against  taxes.  The  loans  were  to  be  at  5  per  cent,  interest, 
to  run  8  years,  and  be  secured  by  land  of  twice  the  value  of  the 
loan  or  houses  of  three  times  that  value.  One-eighth  of  the  loan 
was  to  be  repaid  each  year,  together  with  the  interest.  It  was 
enacted  that  no  one  should  borrow  more  than  £100,  it  being  de- 
sirable to  guard  against  a  control  of  the  loan  by  the  wealthy.  It 
was  also  provided  that  the  bills  should  be  a  full  legal  tender,  and 
that  refusal  to  receive  them  should  cancel  the  debt.  The  bills 
would  pay  debts  and  taxes,  but  were  not  redeemable  in  gold  or 
silver. 

It  was  found  that  £15,000  was  not  sufficient  for  the  needs  of 
business,  and  further  issues  were  made  from  time  to  time,  partly 
on  real  estate  and  partly  on  tax  redemption.  The  term  of  the 
loans  was  extended  in  subsequent  issues  so  that  it  became  16 
years  instead  of  8,  which  made  the  annual  payment  due  from  the 
borrower  less  than  12  per  cent.,  including  interest  and  the  instal- 
ment of  the  principal.  By  1764  there  was  about  £500,000  of  this 
"irredeemable"  paper  money  in  circulation,  about  £400,000  of  it 
having  been  issued  against  taxes  and  the  rest  against  realty. 

This  Pennsylvania  money  kept  its  value  and  did  the  work  of  the 
colony  to  the  entire  satisfaction  of  the  people.  Franklin  said:2 
"The  utility  of  this  currency  became  by  time  and  experience  so 
evident  that  the  principles  on  which  it  was  founded  were  never 
afterwards  much  disputed.  *  *  *  In  New  York  and  Pennsylvania 
it  has  continued  now  nearly  forty  years  without  variation  upon 
new  emissions." 

Some  of  the  colonies,  however,  in  the  South  and  in  New  England, 
had,  by  over-issue,  seriously  depreciated  their  currency,  and  a 
movement  took  shape  in  England  to  restrain  the  emission  of  paper 
in  America  as  legal  tender.  In  February,  1764,  the  Board  of  Trade 
in  England  reported  in  favor  of  such  a  restraining  law  for  the  fol- 
lowing reasons: 

1.  Such  paper-credits  carry  the  gold  and  silver  out  of  the  province 
and  ruin  the  country. 

2.  Merchants  trading  in  America  have  lost  by  this  money. 

3.  Restriction  upon  it  has  had  a  good  effect  in  New  England. 

4.  That  every  medium  of  trade   should  have  an  intrinsic  value 
which  paper  has  not. 

5.  That  debtors  in  the  asemblies  make  paper  money  with  frau- 
dulent intent. 

6.  That  the  bills  have  never  kept  their  nominal  value  in  circula- 
tion, but  have  constantly  depreciated  to  a  certain  degree  whenever 
the  quantity  has  been  increased. 


(*)  Phillips,  pp.  11,  12,  19,  see  also  below  citation  from  Franklin's  works. 
(7)  See    Franklin's    Autobiography    and    Jared    Sparks    ed.    of    Franklin's 
Works,   Vol.  11.,  pp.  254  and  351. 


162  APPENDIX  A. 

Benjamin  Franklin,  then  in  England,  replied  to  these  objections 
as  follows: 

"1.  The  truth  is  that  the  balance  of  trade  with  Britain  being 
greatly  against  the  colonies,  gold  and  silver  is  drawn  out  to  pay 
that  balance,  and  then  the  necessity  for  some  medium  of  trade 
has  induced  the  making  of  paper  money,  which  could  not  be  car- 
ried away.  Thus,if  the  carrying  out  of  the  gold  and  silver  ruins 
a  country,  every  colony  was  ruined  before  it  made  paper  money. 
But  far  from  being  ruined,  the  colonies  have  been  and  are  in  a 
nourishing  condition.1 

"Pennsylvania,  before  it  made  any  paper  money,  was  totally 
stripped  of  its  gold  and  silver,  tho  they  had  from  time  to  time, 
like  the  neighboring  colonies,  agreed  to  take  gold  and  silver  coins 
at  higher  nominal  values,  in  hope  of  drawing  money  into  and  re- 
taining it  for  the  internal  use  of  the  province.  During  that 
weak  practice,  silver  got  up  by  degrees  to  8s.  9d.  per  ounce  *  *  * 
long  before  paper  money  was  made.  *  *  *  The  difficulties  for 
want  of  cash  were  accordingly  very  great,  the  chief  part  of  the 
trade  being  carried  on  by  the  extremely  inconvenient  method  of 
barter,  when  in  1723,  paper  money  was  first  made  there  (in  Penn- 
sylvania), which  gave  new  life  to  business,  promoted  greatly  the 
settlement  of  the  new  lands  (by  lending  small  sums  to  beginners, 
on  easy  interest  to  be  paid  by  instalments)  whereby  the  province 
has  so  greatly  increased  in  inhabitants  that  the  export  from  thence 
thither  (to  England)  is  now  more  than  tenfold  what  it  then  was.a 
"2.  Merchants  may  have  suffered  loss  by  paper  money  in  particu- 
lar instances,  as  in  New  England  and  Virginia,  when  great  sums 
were  issued  to  pay  the  colony  troops,  or  in  South  Carolina  when  she 
was  thought  in  danger  of  being  destroyed  by  the  Indians  and 
Spaniards,  tho  since  that  danger  blew  over  their  currency  became 
fixed  and  has  remained  so  to  this  day.  But  the  merchants  trading 
to  the  middle  colonies  (New  York,  New  Jersey  and  Pennsylvania) 
have  never  suffered  by  any  use  of  exchange.3 

"3.  The  restraining  of  paper  issues  in  New  England  has  embar- 
rassed the  provinces  for  want  of  money  to  such  extent  that  trade 
was  under  great  discouragement.4 

"4.  Intrinsic  value  is  not  necessary.  Bank  bills  and  bankers  notes 
are  daily  used  here  (in  England)  as  a  medium  of  trade,  and  in 
large  dealings  perhaps  the  greater  part  is  transacted  by  their 
means;  and  yet  they  have  no  intrinsic  value. 

"Their  being  payable  in  cash  on  sight  is  indeed  a  circumstance 
that  cannot  attend  the  colony  .bills,  their  cash  being  drawn  away 
by  the  balance  of  trade.  But  the  legal  tender,  being  substituted 
in  its  place,  is  rather  a  greater  advantage  to  the  possessor,  since 
he  need  not  go  to  a  particular  bank  to  get  his  money,  finding 
(wherever  he  has  occasion  to  pay  out  money  in  the  province)  a 
person  that  is  obliged  to  take  the  bills. 

"So  that,  even  out  of  the  province,  the  knowledge  that  every 
man  within  that  province  is  obliged  to  take  its  money  gives  the 
bills  a  credit  among  its  neighbors,  nearly  equal  to  what  they  have 
at  home. 

"At  this  very  time  even  the  silver  money  in  England  is  obliged 
to  be  legal  tender  for  part  of  its  value,  that  part  which  is  the  differ- 
ence between  its  real  weight  and  its  denomination.  Great  part  of 
the  shillings  and  sixpences  now  current  are  by  wearing  become 
5,  10,  20  and  some  of  the  sixpences  even  50  per  cent,  too  light.  For 
the  difference  between  the  real  and  the  nominal  you  have  no  in- 
trinsic value;  you  have  not  so  much  as  paper;  you  have  nothing. 


0)  Franklin's  works  edited  by  Jared  Sparks,  Vol.  II.,  p.  342. 
(2>  Ibid.,  pp.  343-4. 

(3)  Ibid.,  pp.  344-5. 

(4)  In  substance,  p.  346. 


PENNSYLVANIA  CURRENCY.  163 

It  is  the  legal  tender,  with  the  knowledge  that  it  can  easily  be 
repassed  for  the  same  value,  that  makes  .'5  pennyworth  of  silver 
pass  for  sixpence.* 

"On  the  whole,  no  method  has  hitherto  been  formed  to  establish 
a  medium  of  trade  in  lieu  of  money,  equal  in  all  its  advantages, 
to  bills  of  credit,  funded  on  sufficient  taxes  for  discharging  it,  or 
on  land  security  of  double  the  value  for  repaying  it  at  the  end  of 
the  term,  and  in  the  meantime  made  a  general  legal  tender.  The 
experience  of  now  near  half  a  century  in  the  middle  colonies  has 
convinced  them  of  it  among  themselves,  by  the  great  increase  of 
their  settlements,  numbers,  buildings,  improvements,  agriculture, 
shipping  and  commerce,  and  the  same  experience  has  satisfied  the 
British  merchants  who  trade  thither,  that  it  has  been  greatly  use- 
ful to  them,  and  not  in  a  single  instance  prejudicial.1 

"5.  To  deprive  all  the  colonies  of  the  convenience  of  paper  money 
because  it  has  been  charged  on  some  of  them  that  they  made  it 
an  instrument  of  fraud,  is  as  if  all  the  India  banks  and  other 
stock  and  trading  companies  were  to  be  abolished  because  there 
have  been  Mississippi  and  South  Sea  schemes  and  bubbles.2 

"6.  The  paper  money  of  the  middle  colonies  has  kept  its  value. 
In  New  York  and  Pennsylvania  it  has  continued  now  nearly  forty 
years  without  variation  upon  new  emissions,  tho  in  Pennsyl- 
vania the  paper  currency  has  at  times  increased  from  £15,000  to 
£600,000,  or  near  it.3  Nor  has  any  alteration  been  occasioned  by 
the  paper  money  in  the  price  of  the  necessaries  of  life,  when  com- 
pared with  silver.  They  have  been  for  the  greater  part  of  the  time 
no  higher  than  before  it  was  emitted,  varying  only  by  plenty  and 
scarcity,  according  to  the  seasons,  of  by  less  or  greater  foreign 
demand. 

"It  is  nothing  to  the  purpose  to  object  the  wretched  fall  of 
the  bills  in  New  England  and  South  Carolina,  unless  it  might  be 
made  evident  that  their  currency  was  emitted  with  the  same  pru- 
dence and  on  such  good  security  as  ours  is,  and  it  certainly  was 
not.4 


(*)  Ibid.,   pp.   347-8. 
(M  Ibid.,   p.   354. 
(2    Ibid.,  p.  350. 
(3    Ibid.,   p.  351. 

(4  Ibid.,  p.  276.  The  reasons  for  the  depreciation  of  colonial  paper  in 
Mass.,  R.  I.  and  other  New  England  colonies  are  very  apparent.  For 
example,  in  1714  Mass,  authorized  an  issue  of  £50,000  in  bills  to  be  put  in 
the  hands  of  five  trustees  and  let  out  at  5  per  cent,  in  safe  mortgages  on 
real  estate,  to  be  paid  back  in  five  annual  instalments.  This  was  like  the 
Penna.  plan  except  that  the  term  was  too  short — a  25  per  cent,  payment  per 
year  WP.F  too  great  a  burden  and  the  debts  were  not  paid  back  as  agreed— 
on  the  contrary  a  clamour  was  raised  for  further  issues,  and  paper  was 
multiplied  lavishly.  Such  is  the  account  given  by  Bancroft  in  his  History  of 
the  United  States,  Vol.  II.,  pp.  262-3,  and  by  Mr.  Macfarlane  in  the  article 
already  referred  to  in  the  first  chapter  of  this  book. 

For  1749,  just  before  the  close  of  the  era  of  colonial  paper  in  New  Eng- 
land, Prof.  Sumner  states  the  paper  of  Mass,  at  £2,466,712,  R.  I.  £550,000,  and 
N.  H.  £450,000.  While  Phillips'  data  place  the  currency  of  Penna.  at  £85,000 
in  1749  and  that  of  N.  J.  at  £76,000.  Taking  the  population  for  1749  from 
Mulhall's  Dictionary  of  Statistic?),  we  have  the  following  contrasts: 

Colony.  Population  1749.          Currency  1749.        Per  head. 

Mass 220,000  £2,466,712  $60 

R.   1 35,000  550,000  77 

N.   II 30,000  450,000  75 

Penna 210,000  85,000  2 

N.   J 60,000  76,000  6 

New  Jersey  and  Penna.,  whose  bills  were  mutually  honored  over  the 
boundary,  had  together  a  circulation  of  about  $3  per  head.  Penna.  started  in 
1723  with  an  issue  of  less  than  $1  pei  head  and  rose  in  1749  to  an  average  of 
$2  per  head,  while  R.  I.  started  in  1710  with  an  issue  of  $2.50  a  head  and 
rose  by  1749  to  an  average  of  $77  per  inhabitant.  Even  in  1775  the  Pennsyl- 
vania paper  outstanding  was  only  $11  per  capita. 

It  is  no  wonder  that  Pennsylvania  paper  kept  its  value,  while  the  bills 
of  New  England  sank  to  less  than  one  tenth  of  their  original  purchasing 

12 


164  APPENDIX    A. 

Adam  Smith's  "Wealth  of  Nations"  appeared  in  1776;  on  p.  262 
of  that  great  work,  the  author  says: 

"Pennsylvania  was  more  moderate  in  the  emission  of  paper 
money  than  the  other  colonies.  Its  paper  currency  accordingly 
is  said  never  to  have  sunk  below  the  value  of  the  gold  and  silver 
which  was  current  in  the  colony  before  the  first  emission  of  its 
paper  money." 

In  the  Annals  of  the  American  Academy  of  Political  and  Social 
Science,  Vol.  VIII.,  No.  1,  July,  1896,  Mr.  C.  W.  Macfarlane  tabulates 
at  great  length  the  prices  current  in  Pennsylvania  from  1723  to  1773 
from  contemporaneous  newspaper  data  and  old  account  books  pre- 
served by  the  Pennsylvania  Historical  Society.  He  finds  (pp.  67- 
70)  that  up  to  the  middle  of  the  century  (1749  according  to  his 
tables)  there  was  no  advance  in  prices  either  in  the  domestic  or 
the  export  trade,  but  after  that  date  there  was  a  sharp  and  per- 
manent advance  in  the  prices  of  commodities  that  figured  largely 
in  the  colony's  exports,  while  those  that  were  produced  largely  for 
home  consumption  or  were  imported  into  the  province  show  no 
material  advance  in  price,  which  shows  clearly  that  the  changes 
of  price  which  did  occur  were  not  due  to  any  depreciation  of 
the  currency  (which  would  have  affected  home  products  and  im- 
ports as  well  as  exports),  but  were  occasioned  by  a  rising  foreign 
market. 

After  citing  Franklin1  and  Hume2  to  show  the  high  degree  of 
prosperity  that  existed  in  Pennsylvania  during  the  period  under 
consideration,  the  author  concludes  that  the  "irredeemable"  paper 
money  of  Pennsylvania  maintained  its  value  thruout  the  fifty 
years  of  its  existence. 

"Our  study  of  prices,  together  with  the  fact  of  this  marvelous 
prosperity,  seem  to  sustain  Franklin's  claim  that  this  currency 
suffered  no  material  depreciation  for  half  a  century.3 

"The  Pennsylvania  ciTrrency  maintained  its  value,  because  the 
amount  issued  was  not  in  excess  of  their  need4  for  a  medium  of 


power.  Neither  is  it  to  be  wondered  at  that  Parliament  in  1751  restrained 
the  Northern  colonies  from  issuing  legal  tender  bills  and  prohibited  them 
from  issuing  any  bills  of  credit  of  any  sort  except: 

1.  To  cover  expenses  of  the  current  year,  the  paper  not  to  run  over  two 
years,  or, 

'2.  To  provide  for  extraordinary  emergencies  (as  in  case  of  invasion)  a 
fund  to  be  established  to  sink  such  bills  within  five  years. 

Massachusetts  led  the  way  to  a  specie  basis,  which  was  restored  in  New 
England  about  the  middle  of  the  century  and  remained  until  the  Revolution. 

C1)  "Abundance  reigned  in  Pennsylvania  and  there  was  peace  in  all  her 
borders.  A  more  happy  and  prosperous  population  could  not  perhaps  be 
found  on  the  globe.  In  every  home  there  was  comfort.  The  people  generally 
were  highly  moral  and  knowledge  was  extensively  diffused."  Franklin. 

(2)  "In    Pennsylvania   the   land   itself   is   coined.    A   planter   immediately 
after  purchasing  land,   can   go  to   a   public  office  and   receive   notes   to   the 
amount  of  half  his  land,  which  notes  he  employs  in  all  payments.    No  more 
than  a  certain  sum  is  issued  to  one  planter,  and  he  must  pay  back  each  year 
into  the  public  treasury  one-tenth  of  the  notes.    When  they  are  all  paid  back 
he  can  repeat  the  operation.    This  caused  a  prosperity  that  Burke  said  was 
unparallelled."    David    Hume,    historian    of    England,    in    a    letter    to    Abbe 
Morellet. 

(3)  Macfarlane,  p.  71. 

(4)  Hon.  John  Davis  says   (February  Arena,   '94):— "The  paper  money  of 
Pennsylvania  succeeded  as  long  as  it  possessed  the  quality  of  legal  tender. 
It  failed  when  the  British  government  forbade  it  having  that  quality.    Coin 
money,  being  an  exportable  article,  was  always  a  fugitive  in  those  colonial 
days.    It  was  usually  a  failure  when  needed.    It  could  not  be  relied  upon  as 
a  circulating  medium,  nor  could  it  even  be  trusted  as  a  basis  for  paper.    The 
Pennsylvania  paper  rested  entirely  on  the  quality  of  legal  tender  (backed  by 
limited  issue),  and  it  remained  good  and  sound  money  until  that  quality  was 
withdrawn  by  the  British  government  on  purpose  to  destroy  it,  and  thus  to 
render  the   colony   dependent   for  money   on   the   usurers   of   England.    The 
money  did  not  depend  on  the  land  for  its  value  as  some  suppose.    The  lauds 
were  merely  security  for  the  loans.'' 


PENNSYLVANIA  CURRENCY.  165 

exchange,    and  had  ample  provision  made  for  the  redemption  of 
the  larger  part  of  it  by  taxation."1 

Gold  and  silver  were  among  the  articles  which  rose  in  value 
above  the  prices  of  1723.  The  Journals  of  the  Pennsylvania  As- 
sembly, and  Phillips,  p.  19,  give  the  following  figures: 

GOLD  PER  OZ.  SILVER  PER  OZ. 

1700  to  1709  £  7  9s.  2d. 

1709  to  1720  5,  10s.  6s.  10y2d. 

1720  to  1723  5,  10s.  7s.  5d. 

1723  to  1726  6,  6s.  Gd.  8s.  3d. 

1726  to  1730  6,  3s.  9d.  8s.  Id. 

1730  to  1738  6,  9s.  3d.  8s.  9d. 

These  data  show  a  rise  in  the  value  of  the  precious  metals  of 
about  20  per  cent,  between  1723  and  1738,  while  commodity  prices 
in  currency  remained  at  the  level  of  the  silver  and  paper  prices 
of  1723.  The  exchange  on  London  during  the  period  under  discus- 
sion is  stated  by  Walker,  Sumner  and  other  authorities  as  160  to 
180.  This  was  due  to  a  rise  in  bullion  as  compared  either  with 
commodities  in  general  or  the  home  currency,  and  to  the  difficulty 
of  transporting  the  bullion,  or  of  obtaining  bills  on  London.  The 
rise  of  bullion  was  caused  by  the  scarcity  of  it  in  the  colonies  and 
the  necessity  of  obtaining  it  or  exchange,  which  was  also  scarce, 
in  order  to  pay  rents,  etc.,  in  England. 

In  Massachusetts,  where  by  over-issue  the  paper  money  greatly 
depreciated  in  reference  to  commodities,  this  depreciation  together 
with  the  rise  in  bullion,  produced  an  exchange  of  500  in  1737  and 
1100  in  1749.2  That  the  rise  of  exchange  to  160  or  180  in  the  middle 
colonies,  New  York,  New  Jersey  and  Pennsylvania,  was  not  due 
to  a  depreciation  of  the  paper  was  clearly  shown  by  Franklin  in  his 
famous  reductio  ad  absurdum. 

"If  the  rising  of  the  value  of  any  particular  commodity  wanted 
for  exportation  is  to  be  considered  as  a  depreciation  of  whatever 
remains  in  the  country,  then  the  rising  of  silver  above  paper  to 
that  height  which  its  capability  (and  need)  of  exportation  only 
gave  it,  may  be  called  a  depreciation  of  the  paper.  Even  here  (in 
England  where  he  was  writing)  as  bullion  has  been  wanted  or 
not  wanted,  for  exportation,  its  price  has  varied  from  5s.  2d.  to 
5s.  8d.  per  oz.  This  is  near  10  per  cent.  But  was  it  ever  said  or 
thoughtonsuchan  occasion  that  all  the  bank  bills  and  all  the  coined 
silver  and  all  the  gold  in  the  kingdom  were  depreciated  10  per 
cent.?  Coined  silver  is  now  wanted  here  for  change,  and  1  per 
cent,  is  given  for  it  by  some  bankers.  Are  gold  and  bank  notes 
therefore  depreciated?"3 

The  great  philosopher  then  states  that  silver  had  risen  because 
of  the  demand  for  it  for  exportation,  and  that  exchange  on  Lon- 
don was  at  a  still  further  premium,  rising  above  bullion,  since 
it  saved  the  expense  and  risk  of  transporting  gold  or  silver.  In 
part  his  statement  is  as  follows: 

"It  has,  indeed,  been  usual  with  the  adversaries  of  a  paper  cur- 
rency to  call  every  rise  of  exchange  with  London  a  depreciation 
of  the  paper;  but  this  notion  appears  to  be  by  no  means  just, 
for  if  the  paper  purchases  everything  but  bills  of  exchange  at  the 


Four-fifths  of  the  currency  did  not  rest  upon  land  at  all,  but  was 
Issued  against  taxes  In  moderate  volume  and  kept  its  value  because  it  was 
a  full  legal  tender,  receivable  for  all  dues  public  and  private  and  was  not 
issued  in  excessive  quantities,  but  kept  pace  in  its  increase  with  the  growing 
needs  of  business. 

0)  Macfarlane,  pp.  73-4. 

(2)  Walker  on    "Money,"   p.   321. 

(8)  Franklin's  Works,  Vol.  II.,  p.  350. 


166  APPENDIX    A. 

former  rate,  and  these  bills  are  not  above  one-tenth  of  what  is 
employed  in  purchases,  then  it  may  be  more  properly  and  truly 
said  that  the  exchange  has  risen,  than  that  the  paper  has  depre- 
ciated. And  as  proof  of  this,  it  is  a  certain  fact  that  whenever  in 
those  colonies  (New  York,  New  Jersey  and  Pennsylvania)  bills  of 
exchange  have  been  dearer,  the  purchaser  has  been  constantly 
obliged  to  give  more  in  silver,  as  well  as  in  paper,  for  them,  the 
silver  having  gone  hand  in  hand  with  the  paper  at  the  rate  above 
mentioned.1 

A  diagram  frequently  serves  to  place  in  a  very  clear  light  the 
relations  between  two  movements.  Let  us  compare  in  this  way 
the  movements  of  money  and  prices.  The  Pennsylvania  issues  and 
circulation  were  as  follows:2 

DATE.  ISSUES.  CIRCULATION. 

1723  £15,000  £15,000 

1729  30,000  45,000 

1739  35,000  80,000 

1746  5,000  85,000 

1749  85,000 

1756    30,000  115,000 

1757-9     300,855  415,855 

1760-9     5,000  420,000 

1771    15,000  435,000 

1772    25,000  460,000 

1773    11,000  471,000 

1774    150,000  621,000 

1775    158,000  779,000 

As  to  the  movement  of  prices,  Mr.  Macfarlane  finds  a  "sharp  and 
seemingly  permanent  rise"  about  1749  in  the  prices  of  leading  ex- 
ports. Speaking  of  prices  before  1723  and  after  1749,  he  says: 

"While  those  commodities  that  were  produced  largely  for  home 
consumption  or  were  imported  into  the  province  show  no  material 
advance  in  price,  those  that  fig'ured  largely  in  their  exports  had 
advanced  100  per  cent."3 

"Looking  at  the  details  of  his  data  we  find  that  some  imports, 
as  wine,  increased  in  price,  and  that  while  the  average  prices  of 
staple  exports  remained  high  after  1749,  yet  the  price  of  any  single 
article  of  export  vibrated  up  and  down,  sometimes  falling  to  the 
level  of  1747  and  1748  or  lower,  but  speaking  generally  Mr.  Mac- 
farlane's  statements  are  borne  out  by  his  tabulated  data.  Putting 
these  two  sets  of  fact?:  together  we  have  the  following  results: 


0)  Ibid.,  p.  351. 

(2)  Tabulated   from   Phillips   Hist,    and   Penna.    Laws   and   Records.    The 
issues,  or  parts  of  issues  used  to  replace  former  issues  are  omitted,  as  they 
did   not  affect  the  volume  in  circulation.    In   1739  a   committee  of  the  As- 
sembly reported  the  circulation  as  £80,000,  and  in  1745  this  circulation  was 
continued  for  16  years.    In  1753  a  struggle  began  between  the  people  and  the 
English  government  in  respect  to  further  issues.    Up  to  this  time  the  issues 
had  been  on  interest  and  payable  in  instalments,  but  subsequent  issues  were 
against  taxes  simply.     From  1760  to  1769  inclusive  £205,000  were  issued  and 
£200,000  withdrawn.    The  £150,000   issue   was   voted    in   1773,    dated   October 
and  issued  mostly  in  1774. 

(3)  Annals,  etc..  supra,  p.   70. 


t^NNSYLVANIA   CURRENCY. 

1749 


ief 

1775 


GENERAL 
PRICE 

LINE   OF 
EXPORTS 


1723 


GENERAL 

JNt  OF 

CURRENEY 

VOLUME      l5Miuio»45 


1723 


80 
1739 


85     85  115     415 

1746  1749         1756   1759 


460471  773 
1772  1773  1775 


PENN.  CURRENCY 
PER  CAPITA^  

1  

-/  

i 

1723 

2 
1749 

1  1  1  1 
2.1  7  6  II 
1756  1760  1772  177 

Dec 


It  is  clear  that  the  rise  of  prices  in  1749  could  not  have  been 
caused  by  an  increase  of  currency  in  1756  to  1759.  At  the  time  of 
the  rise  and  for  seven  years  after  the  currency  was  practically 
at  a  level,  and  when  we  come  to  the  period  of  paper  increase,  1756 
to  1759,  we  find  prices  gliding  smoothly  along,  showing  some  little 
ripples  from  ;year  to  year  and  from  month  to  month,  but  on  the 
whole  quite  level  thruout  the  period  under  consideration.  Tak- 
ing an  average  of  all  the  staples  in  Mr.  Macfarlane's  tables,1  includ- 
ing exports  and  taking  the  prices  of  1749  as  a  standard  we  have 
the  following: 

GENERAL  PRICE  LEVELS. 
1749  100 

1758  98 

1759  106 

1760  : 101 

1773  112 

1775  .  106 


(*)  If,  instead  of  summing  the  prices  and  dividing  by  the  number  of 
commodities,  we  find  the  quantity  of  each  article  that  could  be  bought  for  $1 
in  1741)  and  then  ascertain  the  prices  of  the  said  quantities  In  subsequent 
years  and  sum  the  results,  we  shall  discover  that,  by  this  method,  the  price 
level  of  1775  was  precisely  the  same  as  that  of  1749,  using  the  commodities 
listed  by  Macfarlane,  p.  70,  Annals,  supra,  so  far  as  data  are  available. 


168  APPENDIX    A. 

It  might  be  supposed  that  the  increase  of  money  had  something 
to  do  with  the  rise  from  1758  to  1759,  but  if  so,  the  paper  lost  its 
effect  in  1760,  when  the  volume  reached  its  height.  Moreover,  it  is 
difficult  to  account,  by  means  of  the  currency,  for  the  drop  be- 
tween 1773  and  1775  in  face  of  a  great  increase  in  the  volume  of 
circulation. 

These  averages  vary  much  less  from  year  to  year  than  the  prices 
of  any  one  commodity  in  different  years  or  even  in  different 
months  of  the  same  year;  and  if  we  had  data  for  a  hundred  repre- 
sentative articles  in  place  of  the  fifteen  staples  of  Mr.  Macfar- 
lane's  tables,  we  should  probably  find  the  average  of  prices  prac- 
tically identical  every  year  from  1749  to  1775. 

Whether  the  replacement  of  other  forms  of  exchange  and  the 
rapid  increase  of  business  absorbed  the  issues  of  1756-9,  or  the 
notes  of  Pennsylvania  circulated  more  freely  in  other  colonies  than 
the  bills  of  other  colonies  circulated  in  Pennsylvania,  I  do  not 
know;  but  it  seems  reasonably  certain  that  the  notes  of  Pennsyl- 
vania did  not  depreciate  from  1723  to  1775. 

Phillips,  speaking  of  the  period  from  1723  to  1738,  says  (p.  19) : 

"During  an  this  time  the  notes,  having  ample  provision  made  for 
their  ultimate  extinction,  circulated  freely  at  their  value,  super- 
seding the  bills  of  other  colonies,  which  had  until  then  consti- 
tuted the  chief  part  of  the  currency." 

After  summing  up  a  longer  time  and  looking  back  on  the  whole 
period  before  the  Revolution,  Phillips  says  (p.  30) : 

"The  early  notes  of  the  colony  seem  to  have  kept  their  credit 
well,  and  had  not  the  revolution  intervened  they  would  all  have 
been  redeemed  at  par,"  as  ample  provision  was  made  by  taxation, 
etc.,  for  their  extinction.  But  the  battle  of  Lexington  roused  the 
colony,  and  the  over-issues  of  the  war  together  with  British  coun- 
terfeits, completed  the  work  of  destruction  begun  by  Act  of  Parlia- 
ment. 

Franklin's  wisdom  and  the  success  of  paper  money  in  Pennsyl- 
vania, ATew  York  and  other  colonies  did  not  stop  the  English  move- 
ment to  deprive  the  colonies  of  the  power  of  issuing  paper,  and  in 
1764  and  1773  Parliament  passed  acts  restraining  the  issue  of  oills, 
and  destroying  the  legal  tender  of  the  paper  currency.  The  results 
were  disastrous. 

Peter  Cooper,  the  great  New  York  financier,  was  a  deep  student 
of  the  philosophy  of  money.  His  letters  on  the  currency  in  pamph- 
let and  newspaper  form  attracted  wide  attention. 

In  reference  to  the  subject  now  before  us,  we  note  the  following 
striking  words  from  his  pen: 

"When  Franklin  was  brought  before  the  Parliament  of  Great 
Britain  and  questioned  as  to  the  cause  of  the  wonderful  prosperity 
growing  up  in  the  colonies,  he  plainly  stated  that  the  cause  was 
the  convenience  they  found  in  exchanging  their  various  forms  of 
labor  one  with  another  by  paper  money,  which  had  been  adopted; 
that  this  paper  money  was  not  only  used  in  the  payment  of  taxes, 
but  in  addition  it  had  been  declared  legal  tender.  f  It  rose  two  and 
three  per  cent,  above  the  par  of  gold  and  silver,  as  everybody  preferred 
its  use.  One  of  its  advantages  was  its  security  against  theft,  as  it 
could  be  easily  carried  and  hidden  on  account  of  its  having  no  bulk, 
as  all  kinds  of  specie  must  necessarily  have.  After  Franklin  ex- 
plained this  to  the  British  Government  as  the  real  cause  of  pros- 
perity they  immediately  passed  laws  forbidding  the  payment  of 
taxes  in  that  money.  This  produced  such  g-reat  inconvenience  and 
misery  to  the  people  that  it  was  the  principal  cause  of  the  Revolu- 
tion. A  far  greater  reason  for  a  general  uprising  than  the  tea 
and  stamp  act  was  the  taking  away  of  the  paper  money." 

President  Walker  says  that  much  of  the  force  of  the  Revolu- 
tionary movement  is  attributed  to  "the  chafing  of  the  colonists 


PENNSYLVANIA  CURRENCY.  169 

imder  the  restriction  and  final  prohibition  of  paper  money  by  the 
Crown."1 

Rev.  John  Twells,  of  London,  an  able  English  writer,  says  of 
the  colonial  paper: 

"This  was  the  monetary  system  under  which  the  American  col- 
onists prospered  to  such  an  extent  that  Burke  said  of  them: 
'Nothing  in  the  history  of  the  world  is  like  their  progress.'  It  was  a 
wise  and  beneficial  system  and  its  effects  were  most  conducive  to 
the  happiness  of  the  people.  Half  the  value  of  his  land  was  ad- 
vanced to  the  head  of  the  family  in  notes  which  circulated  as 
money.  With  these  notes  he  could  hire  labor  and  purchase  imple- 
ments of  husbandry  and  cattle;  and  thus,  where  without  these 
notes,  one  acre  could  be  cleared  and  stocked  in  a  year,  ten 
would,  by  the  assistance  of  the  paper  money  advanced,  be  re- 
claimed from  the  forest  and  rendered  productive.  In  an  evil  hour 
the  British  Government  took  away  from  America  its  'representa- 
tive money,'  commanded  that  no  more  paper  bills  of  credit  should 
be  issued,  that  they  should  cease  to  be  legal  tender;  and  collected 
the  taxes  in  hard  silver.  This  was  in  1773.  Now  mark  the  con- 
sequences. This  contraction  of  the  circulating  medium  paralyzed 
all  the  industrial  energies  of  the  people.  Ruin  seized  upon  these 
once  flourishing  colonies;  the  most  severe  distress  was  brought 
home  to  every  interest  and  every  family;  discontent  was  urged 
on  to  desperation,  till,  at  last  'human  nature'  as  Dr.  Johnston 
phrases  it,  arose  and  asserted  its  rights."  In  1775  the  Congress 
first  met  in  Philadelphia.  In  1776  America  became  an  independent 
State.8 


0)  Money,    p.    310.    See   also    Professor   Wm.    G.    Sumner's   Hist.    Amer. 
Currency,  p.  30. 

(2)  Cited  by  Hon.  John  Davis,   February  Arena,   1894,   p.  364. 


APPENDIX  B. 

ENGLAND. 

(See  reference,  page  20.) 

In  1793  England  went  to  war  with  France.  Coin  began  to  be 
hoarded  and  to  go  abroad.  A  financial  stringency  followed,  and 
business  was  seriously  affected.  The  Bank  of  England,  unable 
to  collect  its  loans,  and  fearing  the  drain  of  specie  with  so  large 
a  mass  of  its  bills  outstanding,  began  to  contract  its  circulation. 
This  embarrassed  the  country  banks  and  they  began  also  to  con- 
tract. In  1796  a  rumor  of  French  invasion  caused  a  run  upon  the 
country  banks,  and  in  consequence  they  made  heavy  demands  on 
the  Bank  of  England.  The  specie  reserve  was  reduced  to  £1,000,000, 
when  the  bank  was  forbidden  by  order  of  Council  to  make  further 
payments  in  specie,  and  in  1797  Parliament  passed  an  act  suspend- 
ing" specie  payments.  From  that  time  on  England  carried  on  the 
war  with  Napoleon  with  inconvertible  paper  money,  and  during 
the  first  ten  years  at  least,  the  issues  being  managed  with  pru- 
dence and  firmness,  so  that  the  volume  of  money  did  not  exceed 
the  needs  of  business,  the  bills  retained  their  value,  and  prices  as 
a  whole,  after  rising  out  of  the  depression  caused  by  the  flight 
of  coin  and  the  panic  contraction  of  the  circulation,  remained 
substantially  on  a  level  with  those  that  had  obtained  before  the 
suspension  of  specie  payments.1 

In  later  years  the  bills  were  issued  more  heavily,  and  in  1809  the 
mint  and  the  market  price  of  bullion  began  rapidly  to  diverge. 
This  may  or  may  not  have  indicated  a  depreciation  of  the  paper; 
it  may  have  been  a  mere  rise  of  gold.  The  true  test  of  deprecia- 
tion in  time  of  war  is  the  general  rise  of  home  products  above 
their  usual  price  level.  There  is  reason  to  believe  that  these  prices 
did  rise  decidedly  in  later  years2  but  it  is  matter  of  common  knowl- 
edge that  for  ten  years  or  more  after  the  suspension,  while  the 
bills  were  not  issued  in  excess,  England's  independent  "irredeem- 
able" paper  money  did  not  depreciate,  but  retained  substantially 
the  same  value  that  gold  of  equal  stamp  possessed  before  the  war.8 

At  the  opening  of  the  war  with  France,  the  circulation  of  Great, 
Britain,  according  to  the  estimate  of  the  Lord's  Committee  of  1819, 
was  as  follows: 

Coin £  25,000,000 

Bank  of  England  Notes 10,500,000 

Country  Bank  Notes 7,000,000 


Total   £  42,500,000 

As  we  have  said  there  was  in  the  first  three  years  a  contrac- 
tion of  the  note  circulation,  which  together  with  the  retirement 
of  large  amounts  of  coin  caused  marked  financial  stringency  and 
commercial  distress.  The  Government  gave  relief  by  lending  money 
to  merchants  and  others.4  On  the  suspension  of  specie  payments 


O  Tooke's  Hist,  of  Prices,  showing  that  while  war  produced  some  fluctu- 
ations and  carried  the  prices  of  certain  articles  to  an  extravagant  height, 
yet  exchanges  were  on  the  whole  as  favorable  during  the  first  10  or  12  years 
of  the  suspension  as  they  had  been  on  an  average  of  96  years,  or  of  any 
10  consecutive  years  preceeding  1797.  See  also  Walker  on  "Money,"  p.  351. 

(2)  According  to  Jevons'  tables  the  price  level  of  1809  was  20  per  cent, 
above  the  level  of  1799. 

(3)  Professor  Dunbar  in  Quarterly  Journal  of  Economics,   Vol.  6,   p.  333. 

(4)  Pitt's    government    offered    to    lend    on    excellent    terms.       Over    ten 
million  dollars  was  loaned  on  personal  security,  and  $936,000  on   goods— the 
whole  was  faithfully  repaid,  much  of  it  before  maturity.    (See  Doubleday's 
"Financial  Hist,  of  England.,  p.  137). 


ENGLISH   CURRENCY. 


171 


and  issue  of  notes  for  Government  expenses,  the  paper  circulation 
of  the  Bank  of  England  grew  as  follows:1 

February,  1797  £9,674,780 

February,   1800  16,844,470 

February,   1805  17,871,170 

February,  1810  21,019,600 

February,   1815  27,261,650 

That  is,  the  notes  of  the  Bank  of  England  were  tripled  in  18 
years.  Considering  the  disappearance  of  coin  and  the  increase  of 
country  bank  bills,  it  seems  probable  that  the  total  circulation 
was  not  much  increased  till  after  1805,  but  by  1815  it  may  have 
been  80  to  100  per  cent,  greater  than  in  17972 — a  per  capita  change 
from  $14  per  head  in  1797  to  about  $21  per  head  in  1815. 

The  war  ended  in  1815.  The  average  paper  price  of  gold,  which 
in  1814  stood  at  £5,  4s.  per  oz.,  fell  to  £4,  13s.  6d.,  where  it  re- 
mained through  1816,  £3,  17s.  ~LQy2d.  being  the  mint  value.  In 
1817  the  premium  fell  until,  as  Mr.  Tooke  says,  there  was  "a  spon- 
taneous readjustment  of  the  value  between  gold  and  paper  to  a 
perfect  equality."  This  restoration  of  the  value  of  the  bank  note 
coincided  with  an  enlargement  of  the  bank  issues  as  compared 
with  any  previous  period.3  The  "spontaneous  readjustment"  was 
due  in  this  case  to  contraction  of  the  currency,  as  we  shall  see  in 
a  moment. 

Lord  Liverpool  became  Prime  Minister  in  1812  and  remained  at 
the  head  of  the  Government  until  1827.  He  was  a  firm  believer 
in  metallic  money  from  hereditary  attachment  to  the  doctrines  of 
his  father,  who  (see  his  "Essay  on  Coins")  was  not  only  a  metallist, 
but  a  believer  in  the  gold  standard  for  the  reason  that  the  richest 
country  in  the  world  should  use  the  most  costly  metal.4  Lord 
Liverpool's  influence  was  one  of  the  causes  of  the  adoption  of  the 
contraction  policy.  It  is  said  that  another  powerful  cause  of  the 
change  of  policy  was  the  great  accumulation  of  capital  in  interest- 
bearing  debts.5  The  wealthy  holders  favored  a  policy  that  would 
increase  the  value  of  these  bonds  and  of  all  loans  and  mortgages, 
as  well.6 

The  first  contraction  was  by  arrangement  between  the  Govern- 
ment and  the  Bank  in  1815  and  1816.  The  Bank  of  England  and 
its  country  subordinates  reduced  their  circulation — the  country 
banks  by  nearly  one-half — in  1816  and  1817.7  "Gold  fell  almost  to 
the  mint  price  (i.  e.  almost  to  par).  Wheat  fell  64s.  a  quarter,  and 

(!)  Doubleday,  pp.  232-7. 

(2)  Financial  Hist.  Eng.,  pp.  234-7.    The  country  banks  were  estimated  at 
200  in  1797,  702  in  1809,  and  940  in  1814.    High  banking  authority  estimated 
the  country  bank  notes  in  1815  at  40  to  50  million  pounds.    The  committee  on 
the  currency  in  1819  at  30  million  sterling.    Mr.  Sedgwick  and  Robert  Mushet 
lower  even  this  estimate  somewhat. 

(3)  Tooke's  Hist.  Prices,  ii.,  52,  60-1.    At  this  time  the  Bank  of  England 
offered  to  redeem  their  £1  and  £2  notes,  and  as  these  notes  were  chiefly  in  the 
hands  of  the   poorer  classes,   no    inconvenience    resulted,     not    more    than 
£1,000,000  being   paid  out.    In   October   the   bank   announced   that   it   would 
pay  gold  for  all  its  notes  issued  before  1817,  but  the  demand  for  gold  was  so 
great  that  the  banks  had  to  recede  from  this  position.    (Walker  on  "Money," 
p.  355  et  seq.) 

(*)  If  it  did  it  would  not  use  gold;  platinum  and  several  other  metals  are 
more  costly  than  gold. 

(5)  Brooks   Adams,   Fortnightly  Review,   August,   1894. 

(6)  The  public  debt,  which  was  1,200  million  dollars  in  1793  amounted  to 
4,200  millions  in  1817.    Pitt  paid  the  interest  in  notes,  believing  that  money 
which  was  good  enough  for  the  people  was  good  enough  for  the  bondholders. 
Not  only  had  the  debt  increased  enormously,  but  a  large  number  of  offices 
had  been  created,  and  these  officials  like  the  owners  of  bonds  and  mortgages 
were  very  favorable  to  specie  payments  and  the  "preservation  of  the  public 
honor." 

(7)  "Resumption  in  Great  Britain,"  by  J.  W.  Schuckers,  1877. 


172  APPENDIX    B. 

such  a  scene  both  of  agricultural  and  commercial  distress  ensued  as 
this  unhappy  country  had  at  that  time  never  before  witnessed."0 
In  1817  the  Government  relented  for  a  time,  and  permitted  an  ex- 
pansion amounting  to  15  millions  of  dollars,  which  did  much  to 
restore  confidence  and  prosperity.  At  the  close  of  1817,  however, 
and  thruout  1818  a  crisis  occurred  which  Mr.  Tooke  attributes 
to  the  contractional  disturbance  caused  by  large  loans  negotiated 
in  England  for  the  French  and  Russian  Governments. 

The  second  attempt  by  the  Government  to  adopt  the  policy  of 
contraction  occurred  in  1819  and  was  successful;  i.  e.,  the  policy 
was  adopted.  "Peel's  Bill,"  as  it  is  called,  providing  for  the  re- 
sumption of  specie  payments  at  a  specified  date  three  years  distant, 
was  introduced  into  the  Commons  on  May  24th  and  passed  June 
23d  amid  a  pandemonium  of  excitement.1 

The  Directors  of  the  Bank  of  England,  true  to  the  interests  oi 
their  country,  opposed  the  measure,  declaring  that  the  rapid  con- 
traction they  would  be  compelled  in  self  defense  to  make  in  order 
to  resume  at  the  required  time  would  ruin  the  industrial  interests 
of  the  nation.  Eminent  bankers  and  merchants  of  London  and 
other  cities  also  opposed  the  bill.  Lord  Liverpool  admitted  in  his 
speech  upon  the  bill  that  "the  commercial  world  would  always  be 
against  the  return  to  specie  payments."  He  also  said  that  "there 
could  be  no  doubt  of  the  advantages  which  the  paper  system  had 
produced  during  the  war."  It  had  enabled  the  country  to  make 
efforts  to  which  its  means  could  not  otherwise  have  been  equal, 
and  he  readily  admitted  that  in  peace  also  the  system  afforded 
facilities  to  commerce  which  it  would  not  otherwise  enjoy.  But 
paper  money  had  no  intrinsic  value;  it  did  not  accord  with  his 
father's  theories,  and  it  was  not  as  good  for  the  bondholders  as 
gold  and  silver  "would  be,  and  so  the  law  was  passed  in  1819. 

The  contraction  of  the  currency  was  pushed  with  vigor,2  prices 
began  to  fall,  merchants  and  manufacturers  failed  by  the  score,  a 
terrific  panic  ensued  in  1825,  and  for  a  whole  generation  the  busi- 
ness of  Great  Britain  was  depressed  by  the  evil  consequences  of 
the  fall  of  prices  that  resulted  from  the  contraction  policy  of 
1818-9. 

In  1829  prices  were  about  one-half  what  they  were  in  1809,  and 
in  1849  they  were  60  per  cent,  below  the  level  of  1809.3  "With  the 
first  measures  for  resumption."  says  Robert  Mushet,  "the  pros- 
perity of  the  country  seemed  to  vanish." 

In  1839  Lord  Brougham  said  that  he  had  always  regretted  having 
supported  Peel's  Bill  for  resumption.  Jean  Baptiste  Say,  the  great 
French  economist,  closes  an  extensive  review  of  the  resumption 
period  in  England  by  declaring  that  "the  privileged  classes,  the 
public  functionaries,  the  pensioners  of  the  State,  and  the  fund- 
holders,  profited  by  the  enhancement  in  the  value  of  money,"  con- 
sequent upon  the  resumption  act,  "but  that  it  laid  a  burden  upon 
the  masses  of  the  people  and  upon  industry  which  so  rich  and  in- 
dustrious a  nation  could  alone  support." 

We  know  that  Mr.  Tooke  endeavors  to  persuade  us  that  Peel's 
Bill  and  the  consequent  contraction  did  not  produce  the  disasters 
of  the  following  years;  but  Mr.  Tooke  was  one  of  the  projectors 


(°)  Ibid.,  quoting  Sir  James  Graham. 
(x)  Corbett's  Parliamentary  History. 

(2)  The  bank  reduced  its  private  discounts  from  32  millions  of  dollars  in 
August,  1819,  to  13%  millions  in  August,  1821,  and  its  paper  circulation  from 
131  millions  in  August,  1818,  to  88  millions  in  August,  1822,  a  reduction  of 
33  per  cent.,  accompanying  which  there  was  a  contraction  of  country  bank 
circulation   between   January,    1819,   and   December,   1822,    of   more   than   80 
per  cent.    (Resumption  in  Great  Britain,  1819-22;  by  J.  W.  Schuckers.) 

(3)  Jevons'  Price-levels.    See  also  Mulhall's  Dictionary  of  Statistics,  title 
"Prices." 


ENGLISH 

and  promoters  of  the  bill,  and  his  testimony  on  this  point  is  of 
little  weight  against  the  limitless  mass  of  evidence  to  the  contrary, 
backed  by  the  whole  force  of  economic  principles  as  expounded 
by  all  the  leading  writers,  and  by  the  analogies  of  every  period 
of  serious  contraction  of  which  we  have  any  record  since  the  world 
began. 

If  instead  of  adopting  the  policy  of  contraction,  England  had 
done  as  France  did  in  1870  and  following  years,  and  expanded  the 
currency  with  easy  loans  on  the  slightest  symptoms  of  business 
depression,  the  disasters  of  the  period  of  falling  prices  might  have 
been  avoided.  The  condition  of  affairs  in  England  under  an  ex- 
panding currency  during  the  Napoleonic  wars,  and  under  contrac- 
tion in  the  following  decades,  is  so  strikingly  parallel  to  the  state 
of  things  in  this  country  during  the  war  expansion  of  1860  to  1865> 
and  the  epoch  of  contraction  following  it,  and  the  story  is  told  with 
so  much  power  by  Sir  Archibald  Alison,  the  great  historian  of 
Europe  and  of  England,  that  we  quote  a  few  passages  from  his 
"England  in  1815  and  1845."  Speaking  of  the  period  from  the 
suspension  of  specie  payments  to  the  beginning  of  contraction,  he 
says: 

"The  next  eighteen  years  of  the  war,  from  1797  to  1815,  were,  as 
all  the  world  knows,  the  most  glorious,  and  taken  as  a  whole,  the 
most  prosperous  which  Great  Britain  had  ever  known.  Ushered 
in  by  a  combination  of  circumstances  the  most  calamitous,  both 
with  reference  to  external  security  and  internal  industry,  it  ter- 
minated in  a  blaze  of  glory  and  a  flood  of  prosperity  which  have 
never  since  the  beginning  of  the  world  descended  upon  any  nation. 

*  *    Agriculture,  commerce,  and  manufacture  had  increased  in  un- 
paralleled ratio;  the  landed  proprietors  were  in  affluence;  wealth  to  an 
unheard-of  extent  had  been  created  among  the  farmers.    *    *    *    In  the 
years  1813  and  1814,  being  the  twentieth  and  twenty-first  of  the 
war,  Great  Britain  had  above  a  million  men  in  arms  in  Europe  and 
Asia,  and  remitted    £11,000,000  yearly  in  subsidies  to  continental 
powers.     Yet  was  this  prodigious  and  unheard-of  expenditure  so 
far  from  exhausting  either  the  capital  or  resources  of  the  country 
that  the  loan  of  1814  was  obtained  at  a  lower  rate  than  that  paid 
at  the  commencement  of  the  war." 

Contrast  this  with  what  Mr.  Alison  says  of  the  post-contraction 
period  from  1819  to  1845,  the  year  in  which  he  wrote: 

"Considered  in  one  point  of  view,  there  never  was  a  nation  which 
in  an  equal  space  of  time  had  made  so  extraordinary  a  progress; 
its  population  had  advanced  from  20  millions  in  1819  to  28  millions 
in  1844;  its  imports  from  30  million  pounds  to  70  millions;  its 
exports  from  44  million  pounds  to  130  millions;  its  shipping  from 
2,350,000  tons  to  3,900,000.  There  never,  perhaps,  was  such  a  growth 
in  these  great  limbs  of  industry  in  so  short  a  period  in  any  other 
State.  *  *  * 

"Considered  in  another  view,  there  never  was  a  period  in  which 
a  greater  amount  of  financial  embarrassment  has  been  experienced 
by  the  Government,  or  more  widespread  and  acute  suffering  en- 
dured by  the  people.  *  *  *  The  government  was  brought  to 
such  a  pass  that  it  was  extricated  from  absolute  insolvency  only 
by  the  re-imposition,  during  European  peace,  of  the  war  income  tax. 

*  *     The  nation   during  the  late  years  of  the  war  prospered 
and  experienced  general  well-being  under  an  annual  taxation  of 
£72,000,000   drawn  from   18   million   souls;    in   the   latter  years   of 
peace  it  has,  with  the  utmost  difficulty,   drawn    £50,000,000  from 
a  population  of  27  millions.    Wages  in  the  former  period  were  hign, 
employment   abundant,   the  working   classes   prosperous,   with    an 
export  of  45  to  50  million  pounds  annually;    in  the  latter,  wages 
were  in  many  trades  low,  employment  difficult,  suffering  general, 
with  an  annual  export  of  120  to  130  million  pounds. 


174  APPEND!*  ii. 

"But  extraordinary  and  apparently  inexplicable  as  these  facts 
may  seem,  they  are  yet  exceeded  in  marvel  by  the  details  of  our 
social  and  economical  state  during  this  period  of  unparalleled  in- 
crease in  our  material  resources.  It  may  safely  be  affirmed  that 
the  anxiety  and  distress  which  were  felt  during  that  brilliant 
period  of  National  growth  have  never  been  surpassed,  at  least  in 
a  State  possessing  the  external  mark  of  prosperity.  It  is  well 
known  to  what  straits  the  Bank  of  England  has  been  reduced  on 
two  different  occasions  in  that  period.  In  December,  1825,  we 
were,  as  Mr.  Huskisson  said,  'within  twenty-four  hours  of  barter.' 

*  *    * 

"The  distress  among  the  mercantile  classes  for  years  after  the 
dreadful  crisis  of  December,  1825,  of  the  agricultural  interests 
during  the  low  prices  from  1825-1832,  and  of  the  whole  community 
from  1837  to  1842,  was  extreme.  Wages  sank  (during  these  disas- 
trous periods  in  the  manufacturing  districts  so  low  that  the;y 
barely  sufficed  with  the  great  bulk  of  workers,  especially  femaleb, 
for  the  support  of  existence.  *  *  * 

"While  population  was  advancing  with  unparalleled  strides  in 
the  manufacturing  districts,  pauperism  even  more  than  kept  pace 
with  it  all,  and  the  extraordinary  fact  has  now  been  revealed  by 
statistical  researches  that,  in  an  age  of  unbounded  wealth  and  gen- 
eral and  long-continued  peace,  a  seventh  part  of  the  whole  inhabi- 
tants of  the  British  Islands  are  in  a  state  of  destitution,  or  pain- 
fully supported  by  legal  relief.  *  *  *  While  70  thousand  persons 
have  among  them  an  annual  income  of  200  million  pounds,  or 
$14,000  each  *  *  *  frightful  strikes  among  workmen,  attended 
with  boundless  distress  among,  and  hideous  democratic  tyranny 
over  them  invariably  succeeded  those  periods  of  suffering,  as  pesti- 
lence stalks  in  the  rear  of  famine;  and  popular  insurrection  has 
become  so  common  that  it  is  a  rare  thing  to  see  two  years  pass 
over  without  martial  law  being  of  necessity  practically  enforced 
in  some  part  of  the  empire.  *  *  *  And  as  if  to  bring  this  chaos 
of  contradictions  to  a  perfect  climax,  at  the  very  time  when  un- 
heard of  exertions  have  been  made  for  the  education  of  the  people 
in  every  part  of  the  empire,  and  the  newly  aroused  fervor  of  re- 
ligion in  all  denominations  of  Christians  has  drawn  forth  un- 
paralleled efforts  for  the  diffusion  of  the  gospel  among  the  working 
classes,  crime  has  made  unexampled  progress  in  every  part  of  the 
empire;  and  the  scandal  has  been  exhibited  of  serious  and  detected 
offenses  having  multiplied  sevenfold  in  a  realm  which,  in  the  same 
period  has  not  added  more  than  70  per  cent,  to  its. population;'  in 
other  words,  during  a  period  of  unparalleled  growth  of  wealth 
and  effort  at  instruction,  crime  has  augmented  ten  times  as  fast 
as  the  numbers  of  the  people.  *  *  *  What  we  do  say  is  un- 
paralleled is  the  co-existence  of  so  much  suffering  in  one  portion 
of  the  people,  with  so  much  prosperity  in  another.  *  *  *  There 
is  food  enough  in  the  land  and  to  spare,  the  surplus  of  it  produced 
by  our  cultivators  is  daily  and  rapidly  on  the  increase.  *  * 
Nor  are  our  resources  in  any  way  approaching  the  natural  limits. 

*  *     *     Capital  exists  and  to  profusion,  amply  sufficient  to  give 
full  and  profitable  employment  to  the  whole  community.     Labor 
adequate  to  any  possible  expansion  of  industry  is  at  nand.    Above 
two  millions  of  destitute  persons  are  pining  for  employment   in 
Ireland  alone.     Our  colonies  are  increasing  with  unheard  of  rap- 
idity. *     *     Yet  with  all  this,  great  and  wide-spread  distress 
generally  exists  among  the  working  poor,   and  whole   classes   of 
society  in  the  more  affluent  ranks  are  gradually  slipping  down  to 
a  state  of  insolvency.    *    *    * 

(The  cause)  A.  "In  investigating  the  cause  of  this  extraordinary 
state  of  things,  one  fact  of  leading  importance  must  at  the  very 
first  glance  strike  the  observer.  It  is  that  the  opulence  wliicli  lias 


ENGLISH  CURRENCY.  175 

flown  into  the  nation  has  been  very  far  indeed  from  being  evenly  dis- 
tributed; and  that,  generally  speaking1,  the  landed  interests  have 
been  as  much  impoverished  during  that  time  as  the  commercial 
have  been  enriched.  *  *  *  The  embarrassments  of  the  landed 
proprietors  are,  with  the  exception  of  a  few  magnates,  notorious 
and  universal.  This  is  decidedly  proved  by  the  prodigious  extent 
to  which  commercial  wealth  is  everywhere  buying  up  the  estates 
of  the  old  gentry,  and  rooting  them  and  their  families  out  of  the 
land.  And  what  is  very  remarkable,  this  state  of  things  is  just  the 
reverse  of  what  it  was  during  the  war.  Agricultural  industry  was 
then  not  only  amply  but  splendidly  remunerated;  the  farmers 
rapidly  made  fortunes,  and  laid  the  foundation  of  the  whole  sub- 
sequent agricultural  progress  of  Great  Britain;  and  the  purchase 
of  land  with  borrowed  money  was  nearly  as  certain  a  mode  of 
making  a  fortune  as  it  has  since  become  of  losing  one." 

B.  "The  next  remarkable  feature  in  the  social  state  of  Great  Britain 
for  the  last  quarter  of  a  century  has  been  that  capital  has  daily 
acquired  a  greater  advantage  over  industry,   or  rather,   large  capital 
over  small.    *    *    *    The  colossal  fortunes  made  by  manufacturers 
and  great  capitalists,  contrasted  with  the  innumerable  bankrupt- 
cies of  lesser  adventurers  in  the  same  perilous  path,  is  a  proof. 

The  common  complaint  that  the  money  power  has  become 
all-powerful,  that  its  sway  is  paramount  in  the  legislature,  and 
that  it  is  able  to  set  all  other  interests  in  the  community  at  defi- 
ance, is  another  proof.  And  a  most  decisive  proof  of  the  universal 
sense  of  the  overwhelming,  and  often  despotic  influence  of  capital, 
has  been  afforded  within  this  period  by  the  astonishing  multipli- 
cation of  joint  stock  companies.  *  *  *  Falling  as  they  generally 
do  under  the  entire  guidance  of  one  or  two  active  and  skilfull  di- 
rectors, they  have  in  effect  enormously  augmented  the  influence, 
already  preponderating,  of  accumulated  capital;  they  often  commit 
practically  with  impunity  unbounded  inroads  on  private  property. 
The  obligation  of  giving  compensation  for  property  injured  or 
taken  is  often  rendered  almost  illusory,  from  the  results  of  trials 
to  ascertain  its  value.  Defying  competition,  such  companies  art 
often  deaf  to  the  cries  of  justice.  Industrial,  as  the  French  say, 
has  come  in  place  of  territorial  feudality;  and  probably  men  have 
already  discovered  in  many  parts  of  the  country,  that  a  joint  stock 
railway  company,  with  its  patriotic  professions,  accumulated  capital, 
legislatorial  attorneys,  skilled  engineers,  scientific  witnesses,  railway 
stockholding  jurymen  and  judges,  and  legions  of  Irish  laborers,  is  a 
more  formidable  neighbor  than  erer  iras  feudal  baron  with  his  mailed 
men-at-arms,  stout  archers  and  strong  castles." 

C.  "The  third   feature  is   the  uprecedented   growth   of   the   city. 
Generally  speaking,  the  city  population  has  immensely  increased, 
and    the    rural    by    no    means   in    the   same    proportion.      In    some 
counties  the  latter  appears  from  the  late  census  to  have  actually 
declined.     *    *    *     Nor  has  the  increase  of  opulence  in  cities  been 
less   remarkable   than   the   augmentation   in  the   number   of    their 
inhabitants.     The  daily  display  of  wealth  in  the  metropolis  excites 
the  astonishment  of  every  beholder.     *     *     *     But  there  are   by 
no  means  the  same  symptoms  of  growing  prosperity  in  the  rural 
districts.     *    *    *     The  farmers  are  contented  if  they  can  live;   to 
make  fortunes  has  become  so  rare  among  them  that  it  is  scarce 
ever  thought  of.    *    *    *    Wealth  is  not  accumulating  in  the  hands 
of  the  cultivators  of  the  soil.    *    *    *    The  affluence  of  the  towns 
is  derived  from  manufacturing  and  commerce,   from   professional 
gains,  or  from  capital  rendered  a  burden  on  land  in  former  times." 

D.  "The   1-xst  feature,   and   it  is   a   most   distressing  one,   is   the 
extraordinary   inequality  in  the  condition  of  the  working  classes  them- 
selves.   *    *'  *    Wages  differ  in  a  remarkable  and  most  distressing 


1T6  APPENDIX    B. 

degree.  *  *  *  It  is  the  condition  of  the  poor  of  the  lowest  grade  which 
is  the  most  extraordinary  feature  of  the  last  20  years,  and  which 
has  now  assumed  such  a  magnitude  as  to  havt  become  in  every 
point  of  view  a  national  concern.  *  *  *  In  every  great  town 
in  the  empire  there  is  a  mass,  about  the  twelfth  or  fifteenth  of 
its  number,who  are  generally  in  a  state  of  almost  total  penury.  In 
periods  of  commercial  distress  this  destitute  class  rises  to  double, 
sometimes  triple  its  average  amount.  It  is  from  this  frightful 
tribulation  of  poverty,  intemperance,  vice  and  destitution,  that 
two-thirds  of  the  physical  contagion  which  ravages,  and  four-fifths 
of  the  convicted  crime  which  burdens  society,  takes  its  rise.  * 
This  desolate  community  consists  of  widows  with  large  families, 
destitute  old  men,  young  thieves,  abandoned  drunkards,  licentious 
prostitutes,  shameless  publicans,  audacious  receivers  of  stolen 
goods,  and  once  virtuous  families,  brought  into  such  hideous  so- 
ciety by  being  thrown  out  of  employment.  And  all  this  exists  un- 
noticed, unrelieved,  within  a  few  hundred  yards  of  the  most 
unbounded  opulence,  amidst  luxury  unheard  of,  prosperity  unex- 
ampled, and  in  a  community  making  more  rapid  progress  in  ma- 
terial resources  than  any  that  ever  appeared  upon  the  earth." 

E.  It  was  said  that  this  distress  of  the  industrious  classes  was 
owing  to  the  transition  from  the  vast  National  expenditures  of 
war  times  to  the  limited  expenditures  of  peace.  But  Mr.  Alison 
replied  that  it  was  "rather  too  late  to  speak  of  that  as  the  cause 
when  they  were  already  in  the  thirtieth  year  of  unbroken  Euro- 
pean peace."  Then  it  was  affirmed  that  protection  was  the  cause 
of  the  aforesaid  evils,  and  the  tariff  duties  were  repealed,  but  the 
condition  of  the  English  laborer  continued  to  be  most  pitiable. 

Having  disposed  of  these  false  theories,  Mr.  Alison  asks,  "What 
was  the  real  cause?"  "The  answer  is:  It  was  the  contraction  of 
the  currency  which  was  unnecessarily  made  to  accompany  the  resump- 
tion of  cash  payments  by  the  Mil  of  1819,  which  has  been  the  chief 
cause  of  all  these  effects." 

"  When  the  commercial  transactions  of  a  nation  increase,  the 
circulating  medium  should  increase  also.  This  is  as  necessary  a 
step  as  that  when  a  people  increases,  their  subsistence  should  be 
augmented  in  a  similar  proportion.  If  twenty  millions  of  men 
on  an  average  of  years  and  transactions  require  40  millions  of  cir- 
culating medium  to  conduct  their  transactions,  then  if  these  men 
swell  to  30  millions,  they  will  require,  other  things  being  equal, 
60  millions  of  money  for  their  transactions.  If  a  supply  propor- 
tioned to  the  increase  of  men  and  the  wants  of  their  commercial 
intercourse  is  not  afforded,  the  circulating  medium  will  become 
scarce,  it  will  rise  in  price  from  the  scarcity  and  become  accessible 
only  to  the  more  rich  and  affluent  classes.  The  industrious  poor, 
or  those  engaged  in  business  with  small  capital,  will  be  the  first 
to  suffer;  they  will  find  it  impossible  to  get  currency  to  carry  on 
their  business  and  will  fail  in  consequence.  To  retain  the  circu- 
lating medium  of  a  country  at  a  stationary  or  declining  amount, 
when  the  numbers  are  rapidly  increasing  and  their  transactions 
are  daily  augmenting  in  number  and  importance,  is  the  same  thing 
as  to  affix  a  limit  to  the  issuing  of  rations  to  an  army  at  a  time 
when  the  number  of  soldiers  it  contained  was  constantly  augment- 
ing. The  inevitable  result  would  be  that  numbers  would  be 
famished." 

Could  there  be  a  more  vivid  and  lifelike  picture  of  events  in  the 
United  States  since  1865  than  this  pen  picture  of  Great  Britain 
in  1845  by  the  great,  clear-sighted,  true-hearted  historian  of  Eng- 
land? And  not  merely  the  post-bellum  periods  are  of  identical 
character  in  the  two  countries,  but  the  prior  period  in  each  is 
also  the  same.  Coin  money  fled  when  the  war  broke  out.  Paper 


ENGLISH  CUBBENCY.  177 

was  issued.  Specie  payments  were  suspended  December  28,  1861. 
The  currency  began  to  expand,  prices  rose,  business  was  active. 
The  war  and  expansion  combined  to  employ  all  labor.  Either  cause 
would  have  been  likely  to  produce  that  effect,  but  together  they 
were  sure  to  produce  it.  Manufactures,  commerce,  agriculture  and 
labor  nourished.  Wages  were  high;  capital  well  paid.  Wealth  in- 
creased at  a  marvelous  rate  in  spite  of  the  tremendous  drain  of 
the  war.  At  the  close  of  the  war  the  people  were  nearly  free 
from  debt  (except  the  National  "debt,  and  even  that  was  far  less 
that  it  was  made  in  the  process  of  contracting  the  currency) ;  there 
were  about  two  billions  of  money  in  circulation  among  25  millions 
of  people,  trade  was  carried  on  for  cash  more  largely  than  ever 
before;  prosperity  was  intense  and  universal. 

In  186<)  the  policy  of  contraction  was  inaugurated,  and  the  cre- 
mation furnaces  began  to  blaze.  The  National  bonded  debt  was 
built  up.  In  1869  it  was  enacted  that  the  bonds  bought  with  de- 
preciated greenbacks  should  be  paid  in  coin.  In  1873  silver  was 
demonetized.  In  1875  it  was  decreed  that  specie  payments  should 
be  resumed  January  1,  1879.  The  result  was  that  in  10  years  from 
the  time  contraction  began,  the  currency  had  diminished  one 
billion  dollars,  while  the  people  using  it  had  nearly  doubled  (25 
millions  of  the  North  in  1865,  45  millions  of  the  whole  country  in 
1876),  while  their  business  had  more  than  trebled.  And  the  process 
of  contraction  has  continued  till  now,  for  altho  the  absolute  volume 
of  money  has  been  increased  somewhat  in  the  last  few  years,  it 
has  not  increased  as  fast  as  population  and  business.  Prices  have 
gone  down.  Wages  have  fallen  and  are  distressingly  unequal  in 
different  places  and  employments.  Small  merchants  have  been 
ruined.  Strikes  and  panics  have  devastated  the  country.  Agri- 
culture has  come  to  be  a  struggle  for  subsistence.  The  farmers 
have  petitioned  for  Government  loans  on  land  and  agricultural 
produce,  and  have  been  told  that  the  tariff  question  was  the  only 
issue  in  politics.  Cities  have  grown  abnormally,  while  rural  dis- 
tricts have  in  some  cases  declined  in  population.  Wealth  has  in- 
creased enormously.  So  have  poverty  and  crime.  The  magnificence 
of  the  millionaire,  and  the  squalor  of  the  tramp,  have  both  become 
too  common  to  excite  a  moment's  notice.  Capital  has  acquired  a 
tremendous  power  over  labor,  and  large  capital  over  small.  Cor- 
porations and  their  abuses  overflow  the  years.  The  condition  of 
the  poor  of  the  lowest  grade  in  the  slums  of  our  cities  is  frightful, 
and  has  become  a  matter  of  National  concern.  How  exact  and 
minute  the  parallel! 

The  grand  fact  is  that  in  England  and  in  the  United  States 
during  the  period  of  expansion,  wealth  was  rapidly  created,  and 
was  well  distributed,  whereby  prosperity  and  happiness  ensued.  But 
during  the  subsequent  period  of  contraction,  tho  wealth  was  still 
more  rapidly  created  it  was  not  well  distributed,  and  misery  was 
the  result.  Contraction  of  the  currency  means  false  distribution,  con- 
gestion of  wealth,  and  that  means  tyranny,  slavery,  misery. 

If  England  and  the  United  States  would  re-establish  the  splen- 
dors of  the  war  time,  they  must  increase  the  currency  as  fast  as 
business  increases,  and  they  should  also  take  possession  of  the  mon- 
opolies that  have  grown  so  fast  in  later  years,  cut  down  the  over- 
rapid  growth  of  great  fortunes  by  a  graded  income  tax  and  a  heavy 
inheritance  fee,  and  make  adequate  preparations  to  employ  in  the 
construction  of  public  improvements  all  workmen  who  at  any  time 
would  otherwise  be  idle.  Thus  we  should  restore  the  great  forces 
that  produced  a  diffused  prosperity  in  the  periods  of  war.  If  these 
simple  things  were  done,  the  embarrassments  of  our  business  would 
cease,  and  public  works  could  be  accomplished  involving  perhaps 
as  vast  a  labor  as  that  expended  in  war,  not  merely  without  im- 
poverishing the  country,  but  to  its  unexampled  enrichment. 


NOTE  ON  THE  REGULATION  OF  THE  MONEY  VOLUME. 

The  efficiency  of  government  control  over  the  money  volume  thru 
the  purchase  and  sale  of  properties  (p.  127)  is  perfectly  clear,  as 
is  also*  the  efficiency  of  the  "call-bond"  plan  (p.  126),  the  govern- 
mental power  to  issue  and  recall  bonds  at  its  pleasure  is  the  power 
to  regulate  at  will  the  volume  of  money.  All  that  is  necessary 
is  to  provide  for  reasonable  adjustment  of  interest  and  fair  dis- 
tribution of  bonds,  or  purchases  and  sales,  so  as  to  ensure  the 
application  of  the  remedy  at  the  points  of  special  need. 

One  of  the  automatic  methods  spoken  of  oil  p.  127,  the  plan  of 
government  loans,  is  also  sufficiently  clear  in  its  operation  to  make 
detailed  discussion  unnecessary,  but  the  other  automatic  method 
operating  thru  government  bonds  payable  on  demand,  needs  some 
elucidation.  The  main  likelihood  of  confusion  arises  from  failing 
to  note  that  to  make  the  regulation  completely  automatic,  the  in- 
terest payable  on  the  bonds  must  vary  with  the  rise  and  fall  of 
prices. 

Suppose  a  large  volume  of  demand  bonds  had  been  issued.  If  a 
scarcity  of  money  occurs  thru  a  shrinkage  of  credit  or  otherwise, 
interest  on  business  loans  would  go  up,  and  persons  feeling  the 
need  of  funds  would  soon  find  it  more  profitable  to  get  money 
for  the  bonds  they  might  possess,  than  to  keep  them  for  the  low 
interest  paid  by  the  Government.  So  far  automatic  action  would 
go  even  tho  the  interest  on  the  demand  bonds  were  fixed  and 
constant.  But  to  secure  automatic  return  whether  the  bonds  were 
in  possession  of  embarrassed  or  unembarrassed  persons  in  times 
of  falling  prices  when  men  with  funds  are  frequently  willing  to 
take  or  keep  safe  investments  at  very  low  interest,  and  to  secure 
the  taking  of  bonds  in  case  of  rising  prices  when  interest  on 
ordinary  business  loans  sometimes  rises  and  sometimes  falls,  it 
would  be  necessary  to  make  the  interest  payable  on  the  bonds 
a  variable  one,  rising  rapidly  as  the  price  level  ascends,  and  fall- 
ing fast  as  the  price  line  descends. 

If  it  were  universally  true  that  interest  falls  with  a  rising  price 
level,  and  rises  with  a  falling  price  level,  a  good  volume  of  demand 
bonds  at  a  moderate  fixed  interest  would  secure  complete  auto- 
matic regulation  of  the  money  volume.  If  prices  rose  and  busi- 
ness interest  went  down,  it  would  soon  become  profitable  to  buy 
bonds,  thus  diminishing  the  circulation  by  the  amount  of  money 
paid  the  Government  for  the  bonds,  and  so  checking  the  rise  of 
prices.  On  the  other  hand  if  prices  fell  and  market  interest  went 
up  it  would  soon  become  unprofitable  to  keep  the  bonds  on  the 
comparatively  low  interest  paid  by  the  Government  so  that  bonds 
would  be  returned  and  the  currency  increased  by  the  money  re- 
ceived from  the  Government  for  them,  so  checking  the  fall  of  prices. 

The  rise  and  fall  of  interest  in  opposition  to  the  rise  and  fall 
of  the  price  line  is  however  only  a  part  truth.  In  times  of  rising 
prices,  the  abundance  of  money,  lessened  risk  in  lending,  and  com- 
paratively small  number  who  have  severe  need  of  borrowing,  tend 
to  lower  interest,  but  the  high  profits  often  made  on  a  rising 
market  tend  to  lead  men  to  borrow  even  at  high  interest  to  extend 
their  business  and  enlarge  their  profits,  and  the  demand  for  and  ab- 
sorption of  capital  in  promising  enterprises  also  tends  to  lift  in- 
terest by  reducing  the  loan  fund.  The  result  is  that  in  times 
of  rising  prices  interest  sometimes  falls  and  sometimes  rises.  In 
times  of  revulsion  and  falling  prices  "interest  always  rises  inor- 
dinately, because  while  there  is  a  most  pressing  need  on  the  part 
of  many  persons  to  borrow,  there  is  a  general  disinclination  to 


NOTE  ON  THE  REGULATION  OF  THE  MONEY  VOLUME.     179 

lend."  (Mill's  Polit.  Econ.;  Bk.  Ill,  CXXIII,  §3,  see  also  §4.)  The 
disinclination  to  lend  or  invest  however  does  not  extend  to  loans 
on  Government  bonds.  The  risks  of  production  are  great  and 
owners  of  money  are  unwilling-  to  loan  and  interest  on  business 
loans  rises,  but  these  same  money  owners  are  anxious  at  such 
times  to  put  their  money  into  Government  bonds  or  other  safe 
investment  even  at  very  low  interest;  and  the  more  depressed  busi- 
ness is,  the  less  chance  there  is  for  capital  in  productive  industry, 
the  more  the  money  owners  call  for  bonds.  (The  American,  vol. 
29,  p.  249.)  Interest  on  loans  to  producers  or  on  any  ordinary 
business  loans  tends  to  rise  in  time  of  distress  and  falling1  prices, 
but  the  interest  demanded  on  safe  investments  such  as  govern- 
ment bonds  tends  to  fall  at  such  times.  Men  seek  to  withdraw 
their  money  from  the  risks  of  production,  and  a  large  amount 
of  money  accumulates  in  financial  centers  eager  to  invest  at  low 
rates  in  anything-  safe. 

So  far,  therefore,  as  demand  bonds  on  constant  interest  might 
be  held  by  unembarrassed  persons  or  those  having  funds  seeking 
safe  investment,  there  would  be  no  automatic  return  or  moneti- 
zation  of  the  bonds  in  times  of  distress,  but  on  the  contrary 
there  would  be  a  demand  for  more  bonds.  On  the  other  hand 
so  far  as  the  bonds  were  held  by  embarrassed  parties  or  men  in 
need  of  money,  they  would  be  turned  into  money  either  by  demand 
on  the  Government  or  sale  to  aforesaid  capitalists  who  had  with- 
drawn or  withheld  their  funds  from  ordinary  investment  and  cir- 
culation, and  in  either  case  the  result  would  be  an  increase  in 
the  available  circulation,  and  a  corresponding1  relief  from  financial 
pressure  and  stringency. 

It  is  evident  from  this  that  in  order  to  make  the  automatic 
action  of  demand  bonds  certain  and  sufficient  under  all  circum- 
stances the  rate  of  interest  payable  on  the  bonds  must  be  made 
a  variable  quantity.  The  law  must  provide  (1)  that  as  prices  rise  the 
rate  of  interest  that  will  be  paid  by  the  Government  on  the  bonds 
shall  grow  rapidly  larger  so  as  to  create  a  demand  for  the  bonds 
that  will  at  once  bleed  the  plethoric  currency  and  restore  a  whole- 
some circulation,  and  (2)  that  as  prices  fall  the  rate  of  interest 
that  will  be  paid  by  the  Government  on  the  bonds  shall  go  down 
a  steep  incline  so  that  it  shall  fall  below  the  rate  at  which  money 
is  willingly  lent  on  such  security,  whereby  the  bonds  will  flow 
toward  the  Government  and  the  tide  of  money  flowing-  out  in 
return  for  them  shall  lift  the  price  line  ag-ain  to  its  normal  level. 

It  must  not  be  forgotten  that,  if  the  reasoning  of  this  book 
is  valid,  after  the  Multiple  Standard  System  is  once  in  operation 
times  of  serious  depression  and  withdrawal  of  money  from  ordi- 
nary investment  will  no  long-er  occur,  and  the  hoarding  of  money 
unwilling  to  venture  on  productive  circulation  will  become  a  thing 
of  the  past,  and  a  factor  that  need  not  be  reckoned  with  in  the 
problem  under  discussion. 

It  must  be  noted  further  that  provision  should  be  made  to  avoid 
the  massing  of  the  bonds  in  the  hands  of  moneyed  syndicates 
whereby  the  issue  and  return  of  the  bonds  mig-ht  be  prevented 
from  having  its  due  effect  on  the  general  circulation.  This  could 
be  guarded  against  by  limiting  the  amount  of  bonds  to  be  held 
by  one  individual  or  company,  and  by  provisions  securing-  the 
fair  distribution  of  the  securities  in  different  sections  of  the 
country  and  among  the  various  states  and  cities  and  counties. 

The  third  and  fourth  methods  of  reg-ulating  the  money  volume 
(p.  127)  are  not  subject  to  the  difficulties  above  considered.  They 
are  proof  against  interference  from  the  variations  of  market  in- 
terest, (the  interest  being  adjusted  by  law  in  the  4th  plan,  and 
the  properties  dealt  with  by  the  3d  plan,  including  some  that  fall 


180      NOTE  ON  THE  REGULATION  OF  THE  MONEY  VOLUME, 

with  a  falling  price  level  and  some  that  may  rise  with  a  falling 
price  level,  and  vice  versa),  and  adequate  distribution  or  appli- 
cation of  the  remedy  in  any  required  amount  at  the  precise  points 
where  the  cure  is  needed,  is  easy  and  natural, — with  the  fourth 
plan  in  fact  the  distribution  will  be  automatic  since  the  demand 
for  Government  loans  will  arise  at  the  points  where  money  is 
stringent  and  funds  are  needed,  and  loans  will  be  returned  where 
rising  prices  lift  the  Government  interest  to  an  uncomfortable 
height.  The  loans  could  be  made  thru  existing  banks  and  monetary 
agencies,  but  might  be  much  more  advantageously  made  thru 
postal  banks.*  . 

There  is  then  one  automatic  plan  of  regulation  the  entire  effi- 
ciency of  which  is  as  clear  as  anything  can  be  made  by  reasoning 
in  the  absence  of  actual  experiment,  and  another  which  could 
probably  be  made  completely  efficient  by  careful  provisions  as  to 
interest  and  distribution.  And  entirely  aside  from  automatic 
regulation  of  any  kind  the  Government  has  at  least  two  methods 
of  regulation,  the  ' 'call-bond"  plan  (p.  126)  and  the  purchase  and 
sale  of  properties  (p.  127),  which  are  easily  capable  of  being 
operated  with  complete  efficiency. 


*Postal  banks  are  not  necessary  to  the  success  of  the  Multiple  Standard 
System,  but  they  would  add  greatly  to  the  ease,  economy  and  certainty  of 
the  Government's  transactions,  not  only  with  reference  to  the  regulation  of 
the  money  volume,  but  in  reference  to  various  other  monetary  affairs,  and 
would  afford  the  people  an  absolutely  safe  deposit  for  their  savings,  a  cheap 
financial  agency  for  the  collection  of  claims, &c.,  an  extra  guard  against  bank 
monopoly  and  a  powerful  aid  for  the  accumulation  of  funds  for  purchase 
and  nationalization  of  railways,  telegraphs,  etc.  A  complete  system  of 
national  finance  must  include  postal  banks  as  well  as  National  Multiple  Stand- 
ard currency. 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
STAMPED  BELOW 


AN  INITIAL  FINE  OF  25  CENTS 

WILL  BE  ASSESSED  FOR  FAILURE  TO  RETURN 
THIS  BOOK  ON  THE  DATE  DUE.  THE  PENALTY 
WILL  INCREASE  TO  SO  CENTS  ON  THE  FOURTH 
DAY  AND  TO  $1.OO  ON  THE  SEVENTH  DAY 
OVERDUE. 


JAN  Q  1941 


LD  21-100m-7,'40 (6936s) 


